FINANCIAL STABILITY REPORT 20184.7 Pension Sector: The Evolution and Operational Overview of NASSIT...
Transcript of FINANCIAL STABILITY REPORT 20184.7 Pension Sector: The Evolution and Operational Overview of NASSIT...
Bank of Sierra Leone
FINANCIAL STABILITY
REPORT
2018
March 2020
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FINANCIAL STABILITY REPORT
2018
Number 02
March | 2020
Data from this publication may be used, provided the source is acknowledged.
Published by: Bank of Sierra Leone
© 2020 Bank of Sierra Leone
Siaka Stevens Street, Freetown, Sierra Leone
Tel: +232 22 226501
Fax : +232 22 224764
Email : [email protected]
Website: www.bsl.gov.sl
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TABLE OF CONTENTS
LIST OF FIGURES ............................................................................................................. vi
LIST OF BOXES ............................................................................................................... vii
Abbreviations .................................................................................................................... viii
Governor’s Foreword ........................................................................................................... x
Executive Summary ........................................................................................................... xii
1.0 Operating Environment ............................................................................................ 1
1.1 Global Economic Developments and Outlook ..................................................... 1
1.1.1 Advanced Economies ....................................................................................... 1
1.1.2 Emerging Market and Developing Economies ................................................ 2
1.1.3 Sub-Saharan Africa ........................................................................................... 2
1.2 Economic growth in West African Monetary Zone ............................................. 3
1.3 Global Inflation .................................................................................................... 3
1.4 Commodity Prices ................................................................................................ 4
1.5 Global Financial Stability ..................................................................................... 5
1.6 Credit Growth in Sub-Saharan African Countries ..................................................... 6
1.7 Selected Financial Soundness Indicators in the West African Monetary Zone ......... 7
2.0 Domestic Macroeconomic Developments................................................................ 8
2.1 Real GDP Growth ................................................................................................ 8
2.2 Public Debt ............................................................................................................... 9
2.3 Price Developments .............................................................................................. 9
2.4 External Sector Developments ................................................................................. 10
2.5 Fiscal Developments ............................................................................................... 10
2.6 Monetary Developments .................................................................................... 12
2.6.1 Interest Rates in the Money Market ............................................................... 12
2.7 Foreign Exchange Market Developments ................................................................ 14
2.8 Concentration In The Banking Sector ...................................................................... 14
3.0 Financial System in Sierra Leone ........................................................................... 15
3.1 The Composition of the Financial System ......................................................... 15
3.2 The Banking Sector Performance ....................................................................... 17
3.2.1 Assets.............................................................................................................. 18
3.2.2 Recent Developments in the Government Securities Market ........................... 19
3.2.3 Stock of Government Securities ........................................................................ 19
3.3 Credit Growth ..................................................................................................... 20
3.3.1 Sectoral Distribution of Loans ....................................................................... 21
3.3.2 Quality of Loan Portfolio in the Banking Sector ........................................... 21
3.4 Liabilities ............................................................................................................ 24
3.5 Interest Rates ...................................................................................................... 26
3.6 Financial Soundness Indicators and Risks to the Banking Sector............................ 26
3.6.1 Earnings, profitability and efficiency ................................................................ 26
3.7 Banking Sector Key Risks .................................................................................. 29
3.7.1 Linkages from Macro to Financial System and vice versa ............................ 29
3.8 Banking Sector – Risk Outlook ................................................................................ 33
3.9 The State of Access to Financial Services in Sierra Leone ...................................... 34
3.10 Stress Test Analysis.................................................................................................... 35
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3.10.1 Credit risk ........................................................................................................ 35
3.10.2 Exchange rate risk ........................................................................................... 36
3.10.3 Liquidity Risk .................................................................................................. 37
4.0. NON-BANK FINANCIAL INSTITUTIONS ............................................................. 38
4.1 Non-bank financial institutions ................................................................................ 38
4.1.1 Landscape .......................................................................................................... 38
4.1.2 Deposit Taking Microfinance Institutions (DTMFIs) ....................................... 38
4.1.3 Credit-only Microfinance Institutions (COMFIs) ............................................. 40
4.2 APEX Bank .............................................................................................................. 42
4.2.1 Activity of the APEX Bank ............................................................................... 42
4.2.2 Performance of the APEX Bank. ...................................................................... 43
4.3 Community Banks (CBs) ......................................................................................... 44
4.3.1 Activity of Community Banks (CBs) ................................................................ 44
4.3.2 Performance of Community Banks (CBs)......................................................... 44
4.4 Financial Services Associations (FSAs)................................................................... 45
4.4.1 Activity of Financial Services Associations (FSAs) ......................................... 45
4.4.2 Performance of Financial Services Associations (FSAs) .................................. 46
4.5 National Cooperative Credit Union Association (NCCUA) .................................... 47
4.5.1 Activity of the NCCUA ..................................................................................... 47
4.6 Mobile Money Providers .......................................................................................... 48
4.6.1 Activity of the Mobile Money Providers .......................................................... 48
4.7 Pension Sector: The Evolution and Operational Overview of NASSIT .................. 48
4.7.1 Regulatory framework ....................................................................................... 48
4.7.2 Activities of the NASSIT .................................................................................. 49
4.7.3 Challenges facing NASSIT and Associated Risks ............................................ 51
4.8 Insurance Sector ....................................................................................................... 52
4.8.1 Regulatory and Supervisory Authority.............................................................. 52
4.8.2 Activity of the insurance sector ......................................................................... 53
4.8.3 Performance of the insurance sector ................................................................. 56
4.8.4 Insurance sector concentration, penetration, and density .................................. 57
4.8.5 Key challenges and recent initiatives in the insurance sector ........................... 58
5.0 FINANCIAL MARKET INFRASTRUCTURE IN SIERRA LEONE ........................ 61
5.1 Payments and securities settlement systems ............................................................ 61
5.2. Other Retail Payment Systems 2014-2018 .............................................................. 63
6.0 FINANCIAL SECTOR REFORMS UNDERWAY .................................................... 64
6.1 Framework on financial system stability.................................................................. 64
6.2 Risk based supervision ............................................................................................. 65
6.3 Risks and enterprise risk management framework ................................................... 65
6.4 Implementation of IFRS 9 ........................................................................................ 65
6.5 Minimum Paid up Capital ........................................................................................ 66
6.6 Non-Performing Loans. ............................................................................................ 66
6.7 Fit and Proper Test ................................................................................................... 66
6.8 Guidelines on the use of Agents ............................................................................... 66
6.9 The Government to the People (G2P) Project .......................................................... 67
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LIST OF TABLES
Table 1: Global Growth ........................................................................................................ 2
Table 2: Selected FSIs of the Banking Sector in WAMZ, in per cent ................................. 7
Table 3: Public Debt, as % of GDP ...................................................................................... 9
Table 4: Government borrowing from commercial banks and non-banks, LeMn ............. 11
Table 5: Monetary Policy Rates and the Interbank Rate, in % .......................................... 13
Table 6: Components of the Financial System in Sierra Leone ......................................... 15
Table 7: Asset composition in the Financial System ......................................................... 16
Table 8: Banking sector assets as a share of Nominal GDP .............................................. 17
Table 9: Assets of the banking sector 2013 – 2018 (LeBn) ............................................... 18
Table 10: Sectorial distribution of loans and advances, in per cent ................................... 21
Table 11: Evolution of NPLs.............................................................................................. 22
Table 12: Liabilities & own resources of the banking sector 2013 – 2018, Lebn.............. 25
Table 13: Deposit concentration – by number of customers .............................................. 26
Table 14: Evolution of key interest rates in the market, in per cent ................................... 26
Table 15: Financial Soundness Indicators .......................................................................... 27
Table 16 : Banking sector income and expenses, (Lebn) ................................................... 28
Table 17: Macro-Financial Linkages ................................................................................. 30
Table 18 Liquidity Stress Test............................................................................................ 37
Table 19 : Structure of other non-bank financial institutions ............................................. 38
Table 20 : Activities of the DTMFIs .................................................................................. 39
Table 21 : Selected performance indicators for deposit-taking microfinance institutions . 40
Table 22 : Activity of COMFIs .......................................................................................... 41
Table 23 : Selected performance indicators of COMFIs .................................................... 41
Table 24 : Activity of APEX Bank .................................................................................... 43
Table 25 : Selected performance indicators of APEX Bank .............................................. 43
Table 26 : Activity of Community Banks (CBs) ................................................................ 44
Table 27 : Selected performance indicators of the Community Banks .............................. 45
Table 28 : Activity of the Financial Services Associations (FSAs) ................................... 46
Table 29 : Selected Performance Indicators of FSAs......................................................... 46
Table 30 : Activity of the NCCUA .................................................................................... 47
Table 31 : Activity of the Mobile Money Providers .......................................................... 48
Table 32 : NASSIT: Key Activity Indicators 2017-2018................................................... 49
Table 33 : NASSIT's Treasury Portfolio by Instrument and Class (Le'000) ...................... 50
Table 34 : Long-term assets profile 2017-2018 (Le'000) ................................................... 51
Table 35 : Activity of the insurance industry (Le millions) ............................................... 54
Table 36 : Asset and Liability Composition of the Insurance Industry .............................. 55
Table 37 : Breakdown of investments, Le Mn. .................................................................. 56
Table 38 : Selected performance indicators of the insurance industry, in % ..................... 57
Table 39 : Insurance industry concentration, in per cent ................................................... 57
Table 40 : Insurance penetration and density rate .............................................................. 58
Table 41 : Real Time Gross Settlement (RTGS) Transactions in 2018 ............................. 61
Table 42 : Automated Clearing House (ACH) Transactions in 2018 ................................ 62
Table 43 : Payment transactions through ATMs and POSs ............................................... 63
Table 44 : Regional distribution of ATMs and POSs ........................................................ 64
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LIST OF FIGURES
Figure 1: Global Growth ...................................................................................................... 1
Figure 2: Global Inflation ..................................................................................................... 4
Figure 3: Commodity Price Indices...................................................................................... 5
Figure 4: Sierra Leone Real GDP Growth Rates 2014-2018 ............................................... 8
Figure 5 : Sierra Leone GDP Growth by Sectors 2013 – 2018 ............................................ 9
Figure 6 : Headline, Food, and non-food inflation ............................................................. 10
Figure 7 : Government Budgetary Operations for 2016-2018 ........................................... 11
Figure 8: Banks’ assets, Government borrowing from banks, credit to private sector, in per
cent of GDP ........................................................................................................................ 12
Figure 9 : Treasury bills and bond rates (yearly averages, in %) ....................................... 13
Figure 10 : The Herfindahl-Hirschman Index .................................................................... 14
Figure 11 : Banking penetration in the region .................................................................... 18
Figure 12 : Maturity profile of T- bills held by commercial banks, Le Mn ....................... 19
Figure 13: Banking Sector Gross Loans............................................................................. 20
Figure 14: Credit to Private Sector in the Region as a share to GDP................................. 20
Figure 15: Evolution of NPLs ............................................................................................ 22
Figure 16 : Share of foreign currency deposits to total deposits, in %............................... 25
Figure 17 : CAR, NPLs, and Provisioning ......................................................................... 28
Figure 18 : Selected earnings, profitability, and efficiency indicators ............................... 29
Figure 19 : Ratio of net loans to total deposits 2013 – 2018 .............................................. 32
Figure 20 : The Income Composition, as of December 2018 ............................................ 32
Figure 21 : Simplified current business model of the banking sector ................................ 33
Figure 22 : Stress Test Results on credit risk 2018 ............................................................ 36
Figure 23 : Stress Test Results on exchange rate depreciation in 2018 ............................. 36
Figure 24 : Deposit-taking microfinance institutions deposits, loans, and assets .............. 39
Figure 25 : Evolution in premiums..................................................................................... 54
Figure 26 : Evolution in claims .......................................................................................... 55
Figure 27 : Automated Clearing House (ACH) Transactions in 2018 ............................... 62
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LIST OF BOXES
Box 1: Enhancing credit management and consumer protection ....................................... 23
Box 2: The payment of contributions (as described in the NASSIT Act) .......................... 51
Box 3: Different types of policies presently offered by the insurance industry ................. 59
Box 4: National Payment Switch ....................................................................................... 62
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ABBREVIATIONS
ACH Automated Clearing House
AfDB African Development Bank
AFF Agricultural Finance Facility
AFI Alliance for Financial Inclusion
ATM Automated Teller Machines
BOP Balance of Payments
CAR Capital Adequacy Ratio
CBs Community Banks
CET ECOWAS Common External Tariff
COMFI Credit-Only Microfinance Institutions
CPS Consumer Protection Section
DLT Distributed Ledger Technology
DB Defined Benefit
DTMFI Deposit Taking Microfinance Institutions
ECOWAS Economic Community of West African States
EMDE Emerging Market and Developing Economies
ETLS ECOWAS Trade Liberalisation Scheme
EVD Ebola Virus Disease
FSA Financial Services Associations
FSR Financial Stability Report
FSDP Financial Sector Development Plan
FSI Financial Soundness Indicators
GDP Gross Domestic Product
GFSR Global Financial Stability Report
GIS Geographic Information System
HIPC Highly Indebted Poor Countries
HHI Herfindahl-Hirschman Index
IDA International Development Association
IFC International Finance Corporation
IMF International Monetary Fund
KYC Know Your Customer
LIC Low-income countries
LLP Loan Loss Provision
MCM Monetary and Capital Markets
MDAs Ministry Department and Agencies
MFI Micro-Finance Institution
MIX Microfinance Information Exchange
MoFED Ministry of Finance and Economic Development
MPR Monetary Policy Rate
MSME Micro, Small, and Medium Enterprises
MTI Ministry of Trade and Industry
NAC National Approval Committee
NCRA National Civil Registration Authority
NDA Net Domestic Assets
NFA Net Foreign Assets
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NCCUA National Cooperative Credit Union Association
NPL Non-Performing Loans
NSFI National Strategy for Financial Inclusion
OFI Other Financial Institutions
POS Point of Sale
PPG Public and Public Guaranteed
ROA Return on Assets
ROE Return on Equity
RTGS Real Time Gross Settlement
SDF Standing Deposit Facility
SLF Standing Lending Facility
SLICOM Sierra Leone Insurance Commission
SSA Sub-Saharan Africa
T-bills Treasury bills
USA United States of America
WAMI West Africa Monetary Institute
WAMZ West Africa Monetary Zone
WEO World Economic Outlook
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GOVERNOR’S FOREWORD
The Bank of Sierra Leone (BSL) has the pleasure to present to the public the second edition
of the Financial Stability Report for Sierra Leone, which covers key developments in the
financial system during 2018, including an elaboration on macro-financial linkages and
resilience of the banking sector under different stress test scenarios.
Despite uncertainties in the global environment and domestic economic challenges the
financial system of Sierra Leone continues to grow and remains stable. The total assets of
the financial system in 2018 grew by 15 per cent with all components of the financial system
recording growth in assets. Domestic deposits continue to grow and remain the main source
of banks’ funding, which reduces banking sector dependence on external sources and
exposure to risks from the international environment.
The banking sector, which represents around 80 per cent of the total assets of the financial
system, concluded the year 2018 with solid performance, as evidenced by key financial
soundness indicators. Overall, the banking sector remained well capitalised, liquid, and
profitable. However, the loan to deposit ratio continues to be very low, the cost of financial
intermediation remains high, thus having consequences for economic growth. In addition,
the banking sector remains highly concentrated on investments in government securities,
and lending is mainly concentrated to the commerce & finance and construction sectors.
These sectors also account for the lion share of non-performing loans (NPLs). Despite the
continuous decline, the overall NPL ratio is still slightly above the prudential threshold, and
as such remains a matter of supervisory concern.
The recently amended BSL Act, Banking Act, and the Borrowers and Lenders Act are
expected to further strengthen BSL’s mandate on financial stability, including risk-based
supervision, macro-prudential and resolution frameworks in line with best international
practice. The planned establishment of the BSL’s Financial Policy Committee will enhance
cooperation and coordination amongst key stakeholders in the financial system including
Sierra Leone Insurance Commission and National Social Security and Insurance Trust
whose contributions to this report is highly appreciated. Furthermore, we expect that the
Financial System Stability Review mission of the IMF, planned to take place by the end of
2019, will help to address most of the financial system challenges indicated in this report.
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The BSL is confident that the current state of financial stability will support further
sustainable expansion of the financial system and contribute to economic development. To
safeguard the financial system stability, the BSL will continue with its risk-based
supervision and macro-prudential measures, closely monitor developments related to the
financial stability, invest in capacity building and, strengthen the financial system regulatory
framework and infrastructure.
Kelfala M. Kallon
Governor
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EXECUTIVE SUMMARY
The global financial conditions remain broadly accommodative and supportive of growth in
the near term, even though financial conditions in some emerging market economies have
tightened since the April 2018 Global Financial Stability Report (GFSR). This development
has been driven by a combination of country-specific factors, worsening of external
financing conditions, and trade tensions. As a result, near-term risks to financial stability
have increased modestly, while medium-term risks remain elevated because of persistent
financial vulnerabilities linked to high debt levels and stretched asset valuations.
Recently published financial stability report for West African Monetary Zone (WAMZ)
indicates that the financial sector of the region continues to show sound and adequate
capitalisation despite weak macroeconomic fundamentals (latest data as of 2017). However,
increasing trend in NPLs in Ghana, Guinea, and Nigeria continues to pose serious challenges
for the banking sector.
The banking sector in Sierra Leone remained liquid, sound and profitable in 2018, as
reflected by the performance of key Financial Soundness Indicators (FSIs). In comparison
with 2017, the pace of growth in the industry’s total assets increased, both at domestic and
foreign fronts. The industry’s income statement recorded an improved performance in
December 2018 when compared to 2017, which is mainly from increased growth in banks’
gross operating income and net income. However, asset quality remained a downside risk
as the industry’s NPL ratio remained above the tolerable limits, even though it edged down
in 2018. There is expectation that the NPL ratio will continue to improve as banks charge
off loans in the loss category by implementing the Credit Write-Off Directive. Furthermore,
banks will enhance their credit underwriting standards and improve on their credit risk
management practices.
There has been no significant changes in the landscape of the financial system in Sierra
Leone. As at end 2018, the number of licensed banks remained at fourteen (14). Of the
fourteen (14) licensed banks, four (4) are domestically owned, while the remaining ten (10)
are subsidiaries and foreign-owned, mainly from Nigeria. As at end 2018, the branch
network of the banks stood at 115, distributed across the country.
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There was an increase in deposit concentration and asset concentration in the banking sector
in Sierra Leone. Expressed as a ratio of the assets of three and five largest banks in the
sector, the banking concentration level increased from 38 per cent in 2017 to 43 per cent in
2018 for the three largest banks, while the five largest banks’ asset concentration moved
from 64 per cent in 2017 to 65 per cent in 2018.
The risk profile of the financial system in Sierra Leone remains the same as reported in the
first edition of the financial stability report. At the macro-financial level, high loan
concentration and high degree of dollarization remain key risks from real sector to the
banking sector, whereas commodity price shocks and fiscal dominance remain key risks
from external and fiscal sector, respectively. In particular, Government arrears to suppliers
and contractors amounted to Le 3.3 trillion (8.75 per cent of GDP) continues to be an
important source of the buildup of NPLs and subsequently a deterrent to the recovering of
the supply of credit to the private sector. Nevertheless, the stress test results presented in the
report show strong resilience of the banking sector under all three scenarios (increase in
NPLs, exchange rate depreciation, and liquidity risk).
The Bank of Sierra Leone (BSL) is increasingly focusing its attention on assessing emerging
vulnerabilities and structural changes in the banking sector. The growing and evolving role
of technology has the potential to further alter the financial landscape. In this regard, the
BSL has been inviting Fintech companies to test their products that support efficient
financial intermediation under a controllable environment. The risks and opportunities of
such products are being carefully examined by the BSL’s Regulatory Sandbox team. The
BSL will continue to undertake any appropriate policy and/or supervisory measures to
mitigate such risks, with a view of enhancing financial stability.
There has been mixed developments in the performance of the non-bank financial
institutions as highlighted by key performance indicators. Overall, the non-bank financial
sector is growing in terms of number of institutions, clients, deposits, and loans. The
microfinance industry expanded rapidly in 2018, thus becoming an important provider of
financial services to Micro, Small, and Medium Enterprises (MSME) and the lower income
segments of the country’s population.
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The National Social Security and Insurance Trust (NASSIT) registered a considerable
number of institutions and employees that are now members of the scheme. However, there
is still much to be done to get the informal sector and the self-employed on board as the
informal sector accounts for over 85 per cent of the active work force. The NASSIT has
initiated measures to provide an attractive scheme for workers in the informal sector. Also,
the introduction of Social Health Insurance and Employment Injury Insurance to the existing
three contingencies is expected to improve social protection coverage/benefits for NASSIT
members.
The performance of the insurance industry was mixed during the last three years. The
investment yield, retention ratio, and return on assets continue to improve year after year.
At the same time, though at solid levels, the return on equity as well as combined ratio have
slightly deteriorated. The SLICOM has also rolled out several initiatives in order to improve
on its oversight function of the operations of the sector to enhance their efficiency.
The banking sector is expected to undergo significant reforms, including compliance with
the new three-year minimum paid up capital plan commencing in 2019 to strengthen the
industry’s capital base.
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1.0 OPERATING ENVIRONMENT
1.1 Global Economic Developments and Outlook
Global output growth was estimated at 3.7 per cent in 2018, down by 0.1 percentage point from
3.8 per cent in 2017, partly driven by elevated trade tensions, idiosyncratic factors (such as,
natural disasters in Japan), political and policy uncertainties in some countries and tighter
financial conditions.
In 2019, global growth was projected to decline to 3.5 per cent from 3.7 per cent in 2018, on
the backdrop of persistent trade and geopolitical tensions and softened commodity prices.
Figure 1: Global Growth
Source: World Economic Outlook October 2019
1.1.1 Advanced Economies
Economic growth in advanced economies declined to 2.3 per cent in 2018 from 2.4 per cent in
2017.The growth outcome in 2018 was largely attributed to the decline in growth in the Euro
area and Japan to 1.8 and 0.9 per cent in 2018 from 2.4 per cent and 1.9 per cent in 2017
respectively. However, the growth in the United States of America (USA) increased to 2.9 per
cent in 2018, from 2.2 per cent in 2017.
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World output Advanced economies
Emerging market and developing economies Sub-saharan africa
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1.1.2 Emerging Market and Developing Economies
Economic growth in Emerging Market and Developing Economies (EMDE) declined by 0.3
percentage point to 4.5 per cent in 2018 from 4.8 per cent – largely on account of a slowdown
in the Chinese economy, due to the tightening of financial regulations and intensified trade war
with the USA. Although growth accelerated in Brazil, Russia and India in 2018 compared to
2017, it was insufficient to boost growth in the EMDEs.
1.1.3 Sub-Saharan Africa
Economic growth in Sub-Saharan Africa (SSA) improved by 0.3 percentage point from 2.9 per
cent in 2017 to 3.2 per cent in 2018. This is underpinned by increase in external demand, higher
commodity prices and improved access to capital. The Nigerian economy continued to grow in
2018, with growth estimated at 1.9 per cent, up by 1.1 percentage points from 0.8 per cent in
2017, supported largely by improved economic activity in the non-oil economy. However,
growth in South Africa declined to 0.8 per cent in 2018 from 1.4 per cent in 2017 as policy
uncertainty held back investment.
Table 1: Global Growth 2016 2017 2018e 2019ᶠ 2020ᶠ
World Output 3.4 3.8 3.6 3.0 3.4
Advanced Economies 1.7 2.4 2.3 1.7 1.7
USA 1.5 2.2 2.9 2.4 0.1
Euro Area 2.0 2.4 1.9 1.2 1.4
Japan 1.0 1.9 0.8 0.9 0.5
EMDEs 4.6 4.8 4.5 3.9 4.6
Brazil -3.5 1.1 1.1 0.9 2.0
Russia -0.2 1.5 2.3 1.1 1.9
India 7.1 7.2 6.8 6.1 7.0
China 6.7 6.8 6.6 6.1 5.8
Sub-Saharan Africa 1.4 2.9 3.2 3.2 3.6
Nigeria -1.6 0.8 1.9 2.3 2.5
South Africa 0.6 1.4 0.8 0.7 1.1
Angola -2.6 -0.2 -1.2 -0.3 1.2
(e =Estimate; f =Forecast)
Source: World Economic Outlook, October, 2019
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1.2 Economic growth in West African Monetary Zone1
Macroeconomic developments and convergence in the West African Monetary Zone (WAMZ)
in 2018 showed that, real GDP growth improved to 2.6 per cent as of December 2018, compared
to 2.1 per cent in 2017. This reflected adjustment in domestic policy, increased momentum in
global economic activities and a pick-up in commodity prices. Inflation in the WAMZ
moderated to 11.3 per cent in 2018, from 14.1 per cent in 2017. Countries also showed relative
stability in their foreign exchange markets.
The performance of WAMZ’s member states was mixed on the fiscal front, while price stability
remained the focus of monetary policy in all member states. However, the stance of monetary
policy varied across the zone. The monetary policy stance in The Gambia, Ghana and Liberia
was accommodative, but remained tight in Sierra Leone, while in Guinea and Nigeria, it
remained neutral.
1.3 Global Inflation
Consumer price inflation increased to 3.8 per cent in 2018 from 3.2 per cent in 2017 on account
of the pass-through of currency depreciations to prices. Regionally, inflation in advanced
economies increased to 2.0 per cent in 2018 from 1.7 per cent in 2017, on the backdrop of higher
energy prices especially in the first half of 2018. Similarly, headline inflation in the EMDEs
increased to 4.9 per cent in 2018, from 4.3 per cent in 2017, reflecting the effect of exchange
rate depreciation in some of the EMDEs.. Headline inflation in SSA declined to 8.6 per cent in
2018 from 11.0 per cent in 2017, induced in part by the relative stability of the exchange rates
for some SSA’s countries.
1As part of fast-tracking the integration process, heads of state of five countries in West Africa decided in Accra,
Ghana, on April 20, 2000 to establish a second monetary zone known as the West African Monetary Zone
(WAMZ). These countries, namely The Gambia, Ghana, Guinea, Nigeria and Sierra Leone, signed the ‘Accra
Declaration’, which defined the objectives of the WAMZ, as well as incorporating an action plan and
institutional arrangements to ensure speedy implementation of their decision. However, in February 2010,
Liberia was acceded to becoming a member of the WAMZ.
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Figure 2: Global Inflation
Source: World Economic Outlook, October 2019
1.4 Commodity Prices
Developments in commodity prices in 2018 varied. Energy prices on average strengthened in
2018, with the index increasing by 27.8 per cent to 87.0, from 68.1 in 2017. This was
underpinned by falling supply and geopolitical concerns. The index is projected to increase in
2019 despite moderating in the fourth quarter of 2018. Similarly, the metals and minerals price
index increased by 5.5 per cent to 82.5 in 2018, from 78.2 in 2017, but projected to decline
modestly in 2019. Nonetheless, there is the risk of heightened volatility in prices on the back of
China’s environmental policies and trade tensions between the USA and China. The latter’s
policy responses were aimed at spurring the Chinese economy and moderating the impact of
tariff negotiations. The agriculture price index, however, declined modestly, driven in part by
supply and demand factors, as well as the trade pressures between the USA and China (Figure
3).
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Figure 3: Commodity Price Indices
Source: World Bank Commodity Market Outlook, October 2019
1.5 Global Financial Stability
While global financial conditions remain broadly accommodative and supportive of growth in
the near term, the financial conditions in some emerging market economies have tightened since
the publication of the October 2019 Global Financial Stability Report (GFSR). This tightening
has been driven by a combination of country-specific factors, worsening external financing
conditions, and trade tensions. As a result, near-term risks to financial stability have increased
modestly, while medium-term risks remain elevated because of persistent financial
vulnerabilities, linked to high debt levels and stretched asset valuations. Looking ahead, a
further escalation of trade tensions, as well as rising geopolitical concerns and policy
uncertainty in major economies, could lead to deterioration in risk sentiment, thereby triggering
a broad-based correction in global capital markets and a sharp tightening of global financial
conditions.
Financial conditions in emerging markets have tightened since mid-April 2018, driven by a
stronger USA dollar, political and policy risks, and an escalation in trade tensions. Market
pressures have been more pronounced in countries with larger external imbalances and weaker
policy frameworks, or in those more exposed to escalating trade tensions. Although overall
vulnerabilities in emerging market economies remain moderate compared with historical levels,
external leverage has continued to rise across most countries. In the near term, the external
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Energy Metals Agriculture
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environment will likely remain challenging: with the normalisation of monetary policy in
advanced economies gaining pace, while emerging and frontier markets are likely to face
reduced portfolio flows. In the event of a sharp deterioration in global risk sentiment, portfolio
outflows could intensify.
The WAMZ’s financial sector continue to show sound and adequate capitalization, despite
weak macroeconomic fundamentals. Increasing trend in NPLs in Ghana, Guinea, and Nigeria
continued to pose serious challenges for the banking sectors amongst member states (Table 2).
1.6 Credit Growth in Sub-Saharan African Countries
The NPLs remained high in many SSA countries and continued to rise, particularly in some
countries where the ratio is already high such as countries in the Central African Economic and
Monetary Community. The high NPL levels reflect the legacy of the 2014 commodity shock,
weak risk management practices, and government arrears (Central African Republic, Chad,
Equatorial Guinea, and Sierra Leone). In Ghana, write-offs are helping to reduce the NPL
overhang as the system wide NPL ratio reached 18.2 per cent in 2018. More generally, high
NPL levels are depressing credit growth and encouraging banks to hold more government
securities.
Despite some improvements in capital adequacy ratio, visible signs on the risk of vulnerability
remain. Banks’ capital has increased as a ratio to risk-weighted assets in several countries
(Chad, Republic of Congo, Equatorial Guinea, Gabon, Ghana, Malawi, Namibia, and Sierra
Leone), though the zero-risk weighting of government securities could mask underlying capital
coverage in the event that sovereign risk materialises.
In many countries, capital increases reflect recent measures to raise minimum capital
requirements, to resolve insolvent banks, or to support illiquid ones (Ghana, Kenya). However,
in several countries, a few small banks remain undercapitalized (Kenya, Nigeria, Togo), while
in a few cases, systemic banks remain undercapitalised as well. Other sources of concern for
the health of banks’ balance sheet include foreign currency liquidity mismatches (Angola), high
loan concentration (Benin, Equatorial Guinea, Malawi, Namibia, and Sierra Leone), insufficient
provisioning (Angola), and increased household and corporate debts (Tanzania).
7
1.7 Selected Financial Soundness Indicators in the West African Monetary Zone
The Financial Soundness Indicators (FSI) in the WAMZ showed that the region is generally
stable with the core indicators showing positive trend.
Table 2: Selected FSIs of the Banking Sector in WAMZ, in per cent
Indicators The Gambia Ghana Nigeria
2016 2017 2018 2016 2017 2018 2016 2017 2018
Asset Based Indicators
NPL/total gross loans 9.30 7.20 3.20 17.00 22.00 18.19 12.80 14.80 11.70
Liquid Assets (core) to total assets 101.30 53.40 57.40 45.50 25.96 27.57 16.30 18.50 22.64
Liquid Assets (core) to short-term liabilities 97.50 90.00 94.80 97.00 53.26 37.28 24.50 27.20 34.15
ROA 2.00 2.30 2.00 3.80 4.00 3.00 1.50 3.10 2.18
Capital Based Indicators
Regulatory capital to risk-weighted assets 68.00 35.80 37.70 18.00 18.00 22.00 15.00 10.23 15.26
NPLs net of net of provision to capital -2.40 0.50 0.20 30.00 36.30 19.50 38.40 45.00 21.00
ROE 12.20 15.80 11.80 17.30 19.00 18.00 12.50 29.20 22.31
Income and Expense Based Indicators
Interest margin to gross income 51.50 48.70 47.30 22.90 11.00 9.50 50.00 61.30 40.70
Non-interest expenses to gross income 58.70 59.00 61.20 65.10 55.00 57.05 63.80 58.20 42.20
Source: WAMI Annual Report, 2018
Table 2 (cont): Selected FSIs of the Banking Sector in WAMZ, in per cent
Indicators Guinea Liberia Sierra Leone WAMZ
2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018
Asset Based Indicators
NPL/total gross loans 7.40 8.75 12.00 36.90 16.00 14.00 22.60 14.64 12.73 14.13 14.27 11.97
Liquid Assets (core) to
total assets 47.50 49.58 51.00 31.80 30.00 26.00 8.40 12.44 12.55 35.89 31.65 32.86
Liquid Assets (core) to short-term liabilities 63.50 64.00 66.00 37.50 42.00 36.00 9.50 14.48 14.80 58.93 48.49 47.17
ROA 2.20 2.17 2.00 1.40 0.27 1.30 2.90 5.30 6.11 2.11 2.67 2.72
Capital Based Indicators
Regulatory capital to
risk-weighted assets 18.00 17.00 15.00 31.00 27.00 27.00 30.70 34.20 38.44 30.00 23.71 25.90
NPLs net of net of provision to capital 7.00 38.33 31.00 12.30 34.00 18.00 24.80 12.10 10.12 27.50 27.46 16.65
ROE 20.60 18.17 23.00 2.60 1.60 7.00 22.30 25.60 27.25 13.93 16.43 18.23
Income and Expense Based Indicators
Interest margin to gross
income 37.20 30.00 35.00 48.50 47.00 49.00 46.50 57.19 53.08 41.86 39.70 39.10
Non-interest expenses to
gross income 31.80 39.00 40.00 81.20 78.00 57.00 58.50 52.45 45.62 60.03 53.93 50.51
Source: WAMI Annual Report, 2018
8
The WAMZ’s member states continue to make efforts in attaining adequate and appropriate
supervision of their banking sectors in order to improve or maintain resilience and enhance the
capacity for intermediation and other pertinent banking roles. Lending rates remained high,
underlining the increase in net interest rate spread. From a country perspective, latest data on
Nigeria, shows that the capital adequacy ratio (CAR) of the banking sector increased to 31.3
per cent in 2018, from 11.7 per cent in 2017. Also, the asset quality (NPL ratio) improved to
11.7 per cent by the end of 2018, from 14.8 per cent in 2017.
In Sierra Leone, the CAR of the banking sector was 38.44 per cent in 2018 compared with 34.2
per cent in 2017, which is well above the statutory minimum requirement of 15 per cent. The
NPL ratio has been declining over the past three years moving from 22.60 in 2016 to 12.73 in
2018. (Table 2), but it still remains slightly above the prudential requirement of 10 per cent.
2.0 DOMESTIC MACROECONOMIC DEVELOPMENTS
2.1 Real GDP Growth
Real GDP growth declined by 0.3 percentage point to 3.5 per cent in 2018 from 3.8 per cent in
2017, largely due to the suspension of iron ore mining activity, coupled with underperformance
in the key sectors of the economy.
Figure 4: Sierra Leone Real GDP Growth Rates 2014-2018
Source: Statistics Sierra Leone
In terms of sectoral growth in 2018, output in agriculture, forestry & fishing sectors declined
by 3.91 per cent compared to 4.48 per cent in 2017, services sector declined by 4.10 per cent
compared to 5.29 per cent in 2017, while the industrial sector output improved to -2.51 in 2018
from -5.31 per cent in 2017, (See Figure 5).
20.7
4.6
-20.5
6.33.8 3.5
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
2013 2014 2015 2016 2017 2018
Per
cen
tages
(%
)
9
Figure 5 : Sierra Leone GDP Growth by Sectors 2013 – 2018
Source: Statistics Sierra Leone
In terms of sectoral contribution to GDP, agriculture accounted for 59 per cent, followed by the
services sector accounting for 31 per cent and industry sector 5 per cent.
2.2 Public Debt
Total public and publicly guaranteed (PPG) debt stood at 41.2 per cent of GDP in 2017,
dropping to 38.6 per cent in 2018 (See Table 3). Debt owed to multilateral creditors dominated
the external debt portfolio (about 76 per cent), followed by bilateral creditors (24 per cent of
total external debt) and pre-HIPC arrears to commercial creditors. Domestic public debt
increased to 22.2 per cent of GDP in 2018 from 16.4 per cent in the previous year.
Table 3: Public Debt, as % of GDP
Components of debt 2016 2017 2018
External debt 41.1 41.2 38.6
Official Creditors 35 35.9 -
Bilateral 5.3 4.9 4.55
Multilateral 39.7 31 29.39
Private Creditors 6.1 5.3 -
Suppliers 6.1 5.3 -
Domestic debt 14.4 16.4 22.2
Total 55.5 57.6 60.8 Source: Ministry Of Finance
2.3 Price Developments
Headline inflation on a year-on-year basis declined to 14.25 per cent in December 2018 from
15.33 per cent in December 2017 and was within the end-year target of 18 per cent. For the
-10
0
10
20
30
Agriculture Industry Services RGDP
Per
cen
t (%
)
2016 2017 2018
10
most part of the year, headline inflation fluctuated, hitting a high of 18.19 per cent in August
2018 before receding gradually to 14.25 per cent in December 2018. The development in
domestic prices was reflected in both food and non-food prices. Food inflation fell to 12.77 per
cent in December 2018 from 17.93 per cent in December 2017. Non-food inflation rose to 16.46
per cent in December 2018 from 10.56 per cent in December 2017.
Figure 6 : Headline, Food, and non-food inflation
Source: Statistics Sierra Leone
2.4 External Sector Developments
The overall balance of payments deficit expanded to US$34.9mn (0.9 per cent of GDP) in 2018
from US$6.1mn (0.2 per cent of GDP) in 2017. The deterioration in the overall balance of
payments position was due to deterioration in the current, capital and financial accounts. The
current account recorded a deficit of US$564.2mn in 2018, compared to US$535.2mn in 2017,
largely due to the deterioration in trade balance as well as the services balance.
The net inflow in the capital account decreased by 13.9 per cent to US$131.6mn in 2018 from
US$153.0mn in 2017, underpinned by a decline in official capital transfers. The net inflow in
the financial account decreased by 2.01 per cent to US$347.7mn in 2018 from US$354.4mn
recorded in 2017, on account of a reduction in other investment.
2.5 Fiscal Developments
Government budgetary operations resulted in an overall deficit (including grants) of Le1,
491.51bn (4.70 per cent of GDP), which is lower when compared to the budgeted deficit of Le1,
0.00
5.00
10.00
15.00
20.00
25.00
Jan
-18
Feb
-18
Mar
-18
Ap
r-18
May
-18
Jun-1
8
Jul-
18
Au
g-1
8
Sep
-18
Oct
-18
No
v-1
8
Dec
-18
Per
cen
t (%
)
Food Inflation Non-Food Inflation Headline Inflation
11
778.43bn (5.61 per cent of GDP) and the deficit of Le1, 855.11bn (6.77 per cent of GDP) in
2017. Overall deficit (excluding grants) amounted to Le2, 338.73bn (7.37 per cent of GDP).
The deficit was financed mainly from domestic sources, especially by the banking sector, as
shown in Table 4.
Figure 7 : Government Budgetary Operations for 2016-2018
Source: Budget Bureau, Ministry of Finance
Table 4: Government borrowing from commercial banks and non-banks, LeMn
Source BSL
-4,000
-2,000
0
2,000
4,000
6,000
8,000
Total Revenue & Grants Total Expenditure Overall Fiscal Deficit
[Bil
lion
Le]
2016 2017 2018
Institutions Government securities Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
T-bills (total) 1,141,885 1,575,963 1,943,445 2,207,282 2,785,829 2,936,416
3 months 71,766 69,892 21,722 16,958 6,000 7,124
6 months 441,882 244,151 195,751 59,658 22,532 1,500
1 year 628,237 1,261,920 1,725,972 2,130,666 2,757,297 2,927,793
Treasury bonds 0 6 3,000 10,000 0 198,154
Total Government securities 1,141,885 1,575,969 1,946,445 2,217,282 2,785,829 3,134,570
T-bills 220,108 140,233 152,374 283,108 338,518 393,748
3 months 85,344 28,074 21,057 10,636 12,596 5,990
6 months 56,625 46,152 26,596 9,850 7,360 7,311
1 year 78,139 66,007 104,721 262,622 318,562 380,447
Treasury bonds 138,008 120,563 127,273 93,330 242,337 81,737
1 year 97,521 80,076 70,536 36,578 0 0
2 years 40,487 40,487 56,737 56,752 40,502 40,487
3 years 0 0 0 0 62,013 0
5 years 0 0 0 41,072 91,072 0
10 years 0 0 0 0 48,750 41,250
Total Government securities 358,116 260,796 279,647 376,438 580,855 475,485
Total T-bills 1,361,993 1,716,196 2,095,819 2,490,390 3,124,347 3,330,164
3 months 157,110 97,966 42,779 27,594 18,596 13,114
6 months 498,507 290,303 222,347 69,508 29,892 8,811
1 year 706,376 1,327,927 1,830,693 2,393,288 3,075,859 3,308,239
Total bonds 138,008 120,569 130,273 103,330 242,337 279,891
Grand Total 1,500,001 1,836,765 2,226,092 2,593,720 3,366,684 3,610,055
Commercial banks
Non-banks
Commercial banks + non-
banks
Government borrowing from commercial banks and nonbanks, LeMn
12
The total assets expressed as a ratio to GDP showed a moderate decrease to 27.0 per cent in
2018 from 27.7 per cent in 2017, despite the increase in the credit to private sector as a share to
GDP at 5.7 per cent in 2018 from 5.3 per cent in 2017.
Figure 8: Banks’ assets, Government borrowing from banks, credit to private sector,
in per cent of GDP
Source: BSL
2.6 Monetary Developments
During the year 2018, the conduct of monetary policy was focused on pursuing end year
inflation target of 18 per cent, preserving the value of the Leone through robust market-based
instruments, while also maintaining the external reserves of the country to enhance the
resilience against external and internal shocks.
In 2018, monetary policy implementation was challenged by tight liquidity conditions in the
interbank market, reflecting low revenue outturn, delayed disbursement of donor inflows, and
accumulation of arrears. To enhance liquidity conditions in the banking system, the BSL entered
into foreign currency swap arrangement with commercial banks amounting at USD50mn.
2.6.1 Interest Rates in the Money Market
The Monetary Policy Rate (MPR) was raised successively from 14.50 per cent at end December
2017, to 15 per cent in May 2018, and further to 16.50 per cent in June 2018, and remained
unchanged at end December 2018. Accordingly, the Standing Lending Facility (SLF) and the
Standing Deposit Facility (SDF) rates were raised from 19.00 per cent and 12.00 per cent to
20.50 per cent and 13.50 per cent, respectively. Consequently, the interbank rate increased from
-
5.0
10.0
15.0
20.0
25.0
30.0
2013 2014 2015 2016 2017 2018
Total assets of the banking sector Government securities held by banks/GDP
13
13.22 per cent in December 2017, to 16.62 per cent in December 2018, but remained within the
policy corridor, indicating an improvement in monetary transmission on the wholesale market
front.
Table 5: Monetary Policy Rates and the Interbank Rate, in %
Interest Rates Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018
Monetary Policy Rate 14.50 14.50 15.00 16.50 16.50
Standing Lending Facility 19.00 19.00 19.00 20.50 20.50
Standing Deposit Facility 12.00 12.00 12.00 13.50 13.50
Interbank Market Rate 13.22 13.53 13.66 14.76 16.62
Source: BSL
Yields on treasury bills (T-bills) showed mixed trends. The yields on 91-days and 182-days T-
bills decreased from 8.22 per cent and 9.68 per cent in December 2017 to 7.30 per cent and 8.14
per cent in December 2018, respectively. However, the yield on the 364-days T-bills increased
from 21.17 per cent in December 2017 to 23.23 per cent in December 2018. The spread between
the 364-days and the 182-days T-bills rates widened from 11.49 per cent in December 2017 to
15.09 per cent in December 2018, while the spread between the 364-days and 91-days T-bills
rates widened from 13.99 per cent in 2017 to 15.93 per cent in 2018. The demand for
government securities continued to be skewed towards the 364-days tenure during the period
under review.
Figure 9 : Treasury bills and bond rates (yearly averages, in %)
Source: BSL
0
5
10
15
20
25
30
2015 2016 2017 2018
Per
centa
ge
YearsT- bills 3 months (effective yield), average T- bills 6 months (effective yield), average
T- bills 1 year (effective yield), average T-bond I - year (effective yield), average
T-bond 2 - year (effective yield), average
14
2.7 Foreign Exchange Market Developments
In the first half of 2018, the foreign exchange market was relatively stable as a result of
increased inflow of foreign currency against the reduction in demand for foreign currency for
the importation of goods and services. However, in the second half, there were increasing
challenges in the foreign exchange market, thus, exerting pressure on the exchange rate which
resulted in the continuous depreciation of the Leone against major international currencies,
especially the USA dollar. The domestic currency depreciated by 7.16 per cent against the USA
dollar in 2018 from a depreciation of 17.4 per cent in 2017.
2.8 Concentration In The Banking Sector
The banking sector in Sierra Leone experienced an increase in deposit and asset concentration
in 2018, when expressed as a ratio to assets and deposits. For the five largest banks in the sector,
the banking concentration level increased to 43 per cent and 65 per cent in 2018 from 38 per
cent and 64 per cent of total assets in 2017, respectively.
The share of three largest banks in total deposits moved from 45 per cent in 2017 to 46 per cent
in 2018. A similar trend was observed for the five largest banks with their share to total deposits
moving from 67 per cent in 2017 to 69 per cent in 2018.
Figure 10 : The Herfindahl-Hirschman Index
Source: BSL
950
1000
1050
1100
1150
1200
1250
2013 2014 2015 2016 2017 2018
Herfindahl-Hirschman Index
Total assets Total deposits
15
Between 2017 and 2018, there were no entries or exits or mergers in the banking industry. There
was a slight decrease in concentration of asset and deposit in the banking sector as measured by
the HHI. This slight decrease in HHI of the banking sector shows that there has been some
improvements in bank competition in 2018 compared to 2017.
3.0 FINANCIAL SYSTEM IN SIERRA LEONE
3.1 The Composition of the Financial System
The number of commercial banks remained at 14 as of 2018. However, there was a nationwide
increase in the number of branches to 115 in 2018 from 109 in 2017. Other financial institutions
comprised 17 community banks, 11 insurance companies and 68 exchange bureaus. There was
25 Credit-only microfinance institutions (COMFIs), 4 deposit - taking microfinance (DTMFIs),
1 Apex Bank, 59 financial service associations (FSAs), 2 mobile financial services providers
and a stock exchange market. There were also 28 National Cooperative Credit Union
Association (NCCUA), with 610 groups operating in the financial system as at end 2018 (Table
6).
Table 6: Components of the Financial System in Sierra Leone
Components of the financial system
Network, number of units
2012 2013 2014 2015 2016 2017 2018
Commercial Banks 13 13 13 13 13 14 14
Community Banks 7 11 11 17 17 17 17
Insurance 10 10 11 11 11 11 11
Exchange Bureaux 39 39 43 50 58 62 68
Other Financial Institution
Credit Only Microfinance 6 8 9 12 15 20 25
Discount Houses 2 2 2 2 2 2 2
Deposit taking Microfinance 2 2 2 2 5 5 4
Leasing Company 0 0 0 0 1 1 1
Financial Services Association 0 0 0 0 51 58 59
Apex Bank 0 0 0 0 1 1 1
Mobile Financial Services 0 0 0 0 2 2 2
Stock Exchange 0 0 0 0 1 1 1
NCCUA 0 0 0 0 0 28 28 Source: BSL
16
Commercial banks continue to dominate the financial system in Sierra Leone, with total assets
amounting to Le 8.5 trillion, equivalent to 26.4 per cent of GDP as at end 2018 (Table 8).
Additionally, the microfinance industry expanded in 2018, thus becoming an important provider
of financial services to Micro, Small, and Medium Enterprises (MSME) and the lower income
segments of the country’s population. This was largely due to the BSL’s drive to promote
financial inclusion.
Table 7: Asset composition in the Financial System
Financial System Components
Total asset (Le Trillion)
2013 2014 2015 2016 2017 2018
Commercial banks 4,329.30 4,817.69 5,287.57 6,333.16 7,432.98 8,549.11
Community banks 30.34 41.05 41.37 41.24 61.25 82.37
Pension Scheme (NASSIT) 809.76 994.25 1,180.13 1,414.49 1476.66* 1620.15**
Exchange bureaux - - - - -
Other financial institutions
Credit-only microfinance 26.22 84.91 66.97 98.26
Discount houses 20.53 12.22 21.21 21.02 17.66 17.92
Deposit-taking microfinance 42.94 51.12 59.13 58.58 161.24 221.10
Leasing company 2.00
FSA - - 29.50 37.83 47.14 55.85
Apex Bank - 8.04 31.77 38.83 39.20 48.68
Mobile financial services - - - - -
Stock Exchange - - - - -
Total 5,232.86 5,926.38 6,676.90 8,030.07 9,303.26 10,693.44
Note: *Revised **Provisional
Source: BSL
The total assets of the financial system increased by 14.94 per cent to Le10.7 trillion as at end
2018, (Table 7). The major entities responsible for this growth included commercial banks
followed by NASSIT and deposit taking microfinance institutions (DTMFIs), while community
banks (CB), credit-only MFIs (COMFIs), discount houses, financial services association
(FSAs) and Apex bank showed moderate contribution. The banking sector continued to perform
its traditional role of deposit taking, providing loan and advances, as well as foreign exchange
dealings.
17
Table 8: Banking sector assets as a share of Nominal GDP
Total Assets to Nominal GDP
Year
Nominal GDP (Le
Trillion)
Total assets of the banking
sector (Trillion Leone) Total assets (% of GDP)
2013 21.32 4.33 20.31
2014 22.69 4.82 21.23
2015 21.58 5.29 24.50
2016 24.29 6.33 26.08
2017 26.88 7.43 27.65
2018 32.40 8.54 26.36
Source: BSL
3.2 The Banking Sector Performance
The banking sector was generally sound and stable in 2018, as it remained well capitalized and
profitable, despite some challenges faced by few banks. All the banks met the statutory
minimum paid–up capital of Le30.0 billion at end-December 2018. The industry’s CAR was
38.44 per cent at end December 2018, compared with 34.20 per cent at end December 2017,
which is well above the statutory minimum requirement of 15.0 per cent.
The banking sector was liquid in 2018 as it met both the cash reserve ratio and the overall
liquidity requirements. The liquidity ratio of 67.91 per cent as at end December 2018 was well
above the 33.0 per cent statutory minimum limit and slightly higher than the 66.90 per cent
recorded as at end December 2017. Net Loans to deposits ratio (Table 15) recorded 27.7 per
cent, which is far below the prudential threshold of 80 per cent in 2018, though it increase by
153 basis points on a year-on-year, it reflects excess liquidity and low intermediation in the
banking sector. Despite the downward trend, the industry’s NPL remained above the 10 per cent
threshold.
In Sierra Leone, though the banking sector has been generally improving, stable and sound, yet
bank penetration is far below the average for low-income countries (LICs) - (See Figure 13).
At the regional level, Nigeria, Sierra Leone, Guinea and The Gambia recorded banking
penetration below the average of LICs, whereas Ghana was above the region’s average.
18
Figure 11 : Banking penetration in the region
Source: IMF Regional Economic Outlook: Sub-Saharan Africa, April 2018
3.2.1 Assets
The total assets of the banking sector increased by 15.02 per cent between 2017 and 2018. At
the end of 2018, the top five banks accounted for 65.12 per cent of total assets. The two-state
owned banks accounted for 30 per cent, while the two domestic privately-owned commercial
banks accounted for 16 per cent of total assets in the banking sector of Sierra Leone. The main
contributors to the growth of assets in the banking sector of Sierra Leone continue to be
investments in government securities, which accounted for 37.33 per cent of assets in 2018,
which is 1.25 per cent higher than in 2017.
Table 9: Assets of the banking sector 2013 – 2018 (LeBn)
2012 2013 2014 2015 2016 2017 2018
Cash 186.36 200.13 296.75 282.22 454.63 408.44 482.14
Claims 1,245.63 1,522.54 1,537.46 1,619.44 1,964.78 2,260.89 2,363.92
Investment 818.94 1,156.95 1,568.26 1,921.41 2,127.36 2,681.98 3,191.40
Advances (net) 1,028.38 1,097.85 1,043.60 1,037.11 1,233.54 1,385.79 1,660.26
Others 148.65 154.48 163.88 196.34 280.92 361.84 466.52
Fixed Assets 190.65 197.35 207.75 231.05 271.92 334.04 384.87
Total Assets 3,618.61 4,329.30 4,817.70 5,287.57 6,333.15 7,432.98 8,549.12
In % of Total Assets
Cash 5.15 4.62 6.16 5.34 7.18 5.49 5.64
Claims 34.42 35.17 31.91 30.63 31.02 30.42 27.65
Investment 22.63 26.72 32.55 36.34 33.59 36.08 37.33
Advances (net) 28.42 25.36 21.66 19.61 19.48 18.64 19.42
Others 4.11 3.57 3.40 3.71 4.44 4.87 5.46
Fixed Assets 5.27 4.56 4.31 4.37 4.29 4.49 4.50
Total Assets 100 100 100 100 100 100 100
Source: BSL
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017
per
cen
t
Sierra Leone Gambia, The Ghana Guinea Nigeria Low Income Countries
19
Investment in 1-year T- bills represented 99.0 per cent of total portfolio in 2018, similar to that
recorded in 2017 (See Figure 12).
Figure 12 : Maturity profile of T- bills held by commercial banks, Le Mn
Source: BSL
3.2.2 Recent Developments in the Government Securities Market
The outcomes in the primary market auctions for Government securities pretty much
remained the same as the 91-days and 182-days tenures were undersubscribed, while the 364-
days tenure was oversubscribed throughout the review period. The demand for government
securities, thus continued to be skewed towards the 364-days tenure.
3.2.3 Stock of Government Securities
The total stock of Government securities increased by Le564.71bn from Le4,390.85bn as at
end December 2017 to Le4,955.6bn as at end December 2018. The share of marketable
securities in the total stock of the Government securities was 67.48 per cent, whereas non-
marketable securities share was 32.52 per cent. As at end December 2018, the proportion of
91-days, 182-days and 364-days T-bills to the total marketable securities was 0.27 per cent,
0.29 per cent and 83.47 per cent respectively, while that of the 2-year Treasury bond was 2.48
per cent. With regards to non-marketable securities, the 3-year, 5-year and 10-year Treasury
bonds accounted for 5.24 per cent, 7.42 per cent and 0.83 per cent respectively.
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
2013 2014 2015 2016 2017 2018
T-bills (total) 3 months 6 months 1 year
20
3.3 Credit Growth
Gross loans increased significantly by 18.17 per cent in 2018 from 2.13 per cent in 2017,
largely driven by the increase in deposits of the banking sector, emanating from Government’s
payments to major contractors including road contractors (see Figure 13).
Figure 13: Banking Sector Gross Loans
Source: BSL
Credit as a share of GDP remained flat around 5 per cent over the past three years, recording
5.22 per cent in 2018. At regional level, the following share of the credit to GDP has been
observed: Ghana (11.10 per cent), Guinea (9.7 per cent), Liberia (15.82 per cent), Nigeria
(12.67 per cent), and The Gambia (6.02 per cent).
Figure 14: Credit to Private Sector in the Region as a share to GDP
Source: WAMI FSR 2018
11.33
5.22
-0.43
11.96
2.13
18.17
-5.00
0.00
5.00
10.00
15.00
20.00
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2013 2014 2015 2016 2017 2018
Gro
ss L
oan
s G
row
th (
%)
Gro
ss L
oan
s (L
e'B
n)
Gross loans - Growth rate
Gross Loans Annual Growth rate%
0
5
10
15
20
25
2013 2014 2015 2016 2017 2018
per
cent
Sierra Leone Ghana Liberia Gambia, The Guinea Nigeria
21
3.3.1 Sectoral Distribution of Loans
The commerce & finance sector accounted for the largest share of total loans amounting to
30.04 per cent, followed by construction (21.70 per cent), business services (9.15 per cent),
miscellaneous (7.71 per cent), manufacturing (7.43 per cent), transport and storage (6.51 per
cent), personal services (5.72 per cent), and mining & quarrying (3.11 per
cent).Communication, agriculture & forestry and utility services sectors benefited the least,
from loans, accounting for 1.69 per cent, 1.27 per cent and 0.59 per cent respectively (Table
10).
The high allocation of resources to the commerce & finance, and construction sectors was in
support of the private sector and increased infrastructural developments, which was going on
within the country.
Table 10: Sectorial distribution of loans and advances, in per cent
Sector/Industry 2017 2018
Agriculture, Forestry 1.26 1.27
Marine Resources 0.00 0.00
Mining & Quarrying 4.62 3.11
Manufacturing 6.78 7.43
Construction 19.88 21.70
Utility Services 0.50 0.59
Commerce and Finance 33.22 30.04
Transport and Storage 5.52 6.51
Petroleum 1.47 2.04
Business Services 8.82 9.15
Personal Services 3.40 5.72
Communication 2.10 1.69
Other Services 5.36 3.05
Miscellaneous 7.08 7.71
Total 100.00 100.00 Source: BSL
3.3.2 Quality of Loan Portfolio in the Banking Sector
Credit risk remained a key challenge for the banking sector as evidenced by the high level of
NPLs ratio over the period. Though decreasing, the NPL ratio remained above the prudential
threshold, underscoring a deterioration in asset quality of key players in the industry.
22
Table 11: Evolution of NPLs
Source: BSL
Evolution of non-performing loans
Gross Loans
(Le Bn) NPL (Le Bn) Ratio of NPL (%)
2013 1,280.94 287.25 22.42
2014 1,347.80 450.76 33.44
2015 1,341.95 425.86 31.73
2016 1,502.40 340.36 22.65
2017 1,534.45 224.71 14.64
2018 1,813.32 230.47 12.73
Figure 15: Evolution of NPLs
Source: BSL
The total non-performing loans of the banking sector stood at Le230.47 billion as at December
2018, accounting for 12.71 per cent of the total credit portfolio of Le1.81trillion. This was Le5.76
billion (2.56 per cent) higher than Le224.71 billion in 2017 but with a ratio of 14.64 per cent. The
decrease in the NPL ratio was mainly due to the implementation of the loan write-off directive, as
banks charged off the loss component of the non-performing facilities, which have been fully
provisioned from their balance sheet. The NPL is expected to decline going forward as measures
are being put in place by commercial banks to ensure that predatory borrowers honour their
obligations through repayment or foreclosure on their properties pledged as collateral.
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
-
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
500.00
2013 2014 2015 2016 2017 2018
Le
Bn
%
NPL (Le Bn) Ratio of NPL (percent)
23
Box 1: Enhancing credit management and consumer protection
1.1. Credit Reference Bureau (CRB)
The CRB was established in 2011, following the enactment of the Credit Reference Act 2011. The major
objective of the CRB is to produce credit reports to allow financial institutions to make informed judgment
on the debt obligation of individuals and companies in the financial system.
The CRB receives on average one hundred requests for credit reports per day from only commercial banks,
which are processed manually. Early in 2018, the CRB has also rolled out its services to microfinance
institutions, community banks and financial services associations. The key challenges of the CRB relate to
the lack of unique identifier and the manual processing of requests. In a bid to ameliorate the system,
there is a move towards automating the CRB, as well as providing digital identification to solve the
problem of identification.
The KIVA mission team made several visits, and as part of their mission conducted feasibility study of the
project. This is part of a larger project, which includes working with the National Civil Registration
Authority (NCRA) to provide a new national digital identification system using Distributed Ledger
Technology (DLT). KIVA has completed mapping the digital ID and is currently working with the
BSL to modernise the CRB. This will enable real-time processing of requests for information about loan
applicants as well as connecting the CRB to NCRA database. The project is expected to be completed by
December 2019.
1.2. Collateral Registry
Micro, small, and medium enterprises (MSMEs) are considered engines of economic growth, but in Sierra
Leone, the MSMEs are faced with several problems that limit their contribution to prosperity and growth.
One of such problem is the lack of adequate access to finance. To reduce the risks associated with extending
credit to these institutions, banks would typically require movable and/or immovable assets as collateral from
their borrowers. As most MSMEs own more movable and less immovable assets, the BSL and the World
Bank established the Collateral Registry, which was officially launched in June 2017, following the
enactment of the Borrowers and Lenders Act, 2014 and the Borrowers and Lenders (Collateral
Registry) Regulations, 2016. This Act was enacted to facilitate access to credit for local businesses and as
well as to stimulate responsible lending to MSMEs.
Among the features of the 2014 Borrowers and Lenders Act were; the establishment of a Collateral Registry,
where charges over movable property are registered; the regulations of the borrowers and lenders rights and
duties with respect to the said charges; and, establishment of the rules of priority in the event of multiple
charges upon the same movable property.
However, with the passage of time, some gaps were identified in the 2014 Borrowers and Lenders Act with
respect to secured transactions standards and international best practices. This prompted the BSL in
collaboration with the International Finance Corporation (IFC) to hold extensive consultation with
other stakeholders. In view of the voluminous changes and their importance, which emerged, the consultant
decided to overhaul the entire Act by replacing it with a new Act (enacted in June 2019); this Act enables all
lenders to accept movables as collateral and register security interests in the Collateral Registry under a
single regime. It would also ensure that all interested parties can readily find out whether the borrower’s
property is subject to a security interest.
The new Act would broaden the scope of the collateral registry to include the registration of immovable assets
24
3.4 Liabilities
The activity of Sierra Leone’s banking sector continues to be financed mainly from deposits
collected within the Sierra Leone economy, which comprised 71.5 per cent of total liabilities
and shareholder’s fund of 15.2 per cent at the end of 2018 (Table 12).
The share of deposit to total liability, increased to 71.48 per cent in 2018 from 71.02 per cent
in 2017, reflecting a moderate increase in the pace of deposit mobilization. The increase in
total deposits in 2018 compare to 2017 was around 16 per cent, reflecting increased confidence
in the banking sector as well as an improvement in financial awareness campaigns and new
products introduced by commercial banks.
(one-stop shop) and also enable individuals who are not licensed and supervised by the BSL to be able to
register their security interest. It should be noted that the Borrowers and Lenders Act, 2014 was only
operational for incorporated entities (institutions licensed and supervised by the BSL), thereby excluding
non-incorporated entities and individuals, contrary to international best practice as indicated in the World
Bank Doing Business Report 2018.
1.3. Consumer Protection
As part of its statutory efforts to promote public confidence in the financial system, the BSL has set up a
Consumer Protection Section (CPS) in the Banking Supervision Department. The CPS is charged
with the responsibility of protecting and promoting the rights of customers in the banking sector by
developing an effective complaint management mechanism, where customers and the general public can
lodge complaints/concerns related to services/products provided by banks. Furthermore, the CPS is also
charged with conducting public education and awareness on the rights, duties and responsibilities of banks to
their customers.
Since its establishment in 2018, the CPS has handled several cases involving banks and their customers.
Currently, the CPS is in the process of developing a Consumer Protection Framework, which will be used
industry wide, aimed at enhancing consumer confidence in the financial services industry and promoting
financial stability, growth, and innovation.
Source: BSL
25
Table 12: Liabilities & own resources of the banking sector 2013 – 2018, Lebn
Banking Sector Liabilities 2013-2018 (Lebn)
Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
Shareholder's fund 586.67 578.63 651.53 734.71 1,047.84 1,299.02
Takings and other financial
institutions 0.00 0.00 0.00 0.00 0.00 32.99
Other amounts allowed as capital 4.86 5.53 5.40 4.76 0.00 0.00
Short Term Borrowings 74.16 16.36 6.28 15.36 139.80 209.28
Long Term Borrowings 22.00 20.87 14.79 14.79 114.90 99.99
Balance due to financial institutions 16.31 5.90 5.68 0.00 2.86 49.14
Deposits 3,442.38 3947.75 4,287.03 5,076.02 5,274.94 6,111.01
Special deposits 2.51 0.55 0.65 0.37 120.40 128.35
Margins Against Cont Liabs 14.39 39.69 33.52 64.81 277.56 364.90
Bills Payable 0.00 0.00 0.00 0.00 0.00 0.00
Other Liabilities: 182.33 208.31 289.02 422.35 450.49 254.43
Total liabilities 4,329.47 4,817.69 5,287.57 6,333.16 7,432.98 8,549.11
In per cent of total liabilities
Shareholder's fund 13.55 12.01 12.32 11.60 14.10 15.19
Takings and other financial
institutions 0.00 0.00 0.00 0.00 0.00 0.39
Other amounts allowed as capital 0.11 0.11 0.10 0.08 0.00 0.00
Short Term Borrowings 1.71 0.34 0.12 0.24 1.88 2.45
Long Term Borrowings 0.51 0.43 0.28 0.23 1.55 1.17
Balance due to financial institutions 0.00 0.00 0.00 0.00 0.04 0.57
Deposits 79.51 81.95 81.07 80.16 71.02 71.48
Special deposits 0.06 0.00 0.01 0.00 1.62 1.50
Margins Against Cont Liabs 0.33 0.82 0.63 1.02 3.73 4.27
Bills Payable 0.00 0.00 0.00 0.00 0.00 0.00
Other Liabilities 4.21 4.32 5.47 6.67 6.06 2.98
Total liabilities 100 100 100 100 100 100
Source BSL
The degree of dollarisation of the banking sector remains high as evidenced by the share of foreign
currency deposits to total deposits, which increased from 37.15 per cent (2017) to 38.29 per cent
(2018).
Figure 16 : Share of foreign currency deposits to total deposits, in %
Source: BSL
30.00 31.00 32.00 33.00 34.00 35.00 36.00 37.00 38.00 39.00 40.00
2013
2014
2015
2016
2017
2018
26
Table 13: Deposit concentration – by number of customers
Deposit concentration - number of customers
2013 2014 2015 2016 2017 2018
Current
Foreign 21,209 26,870 27,238 28,606 50,149 40,825
Domestic 137,549 154,330 163,068 177,561 144,217 222,122
Savings
Foreign 3,999 5,666 34,768 5,479 6,953 8,314
Domestic 525,017 541,100 466,898 530,902 564,777 800,624
Time
Foreign 8 4 15 7 1 2
Domestic 963 1,618 1,764 1,969 1,961 2,423 Source: BSL
3.5 Interest Rates
Commercial bank rates, which comprised savings, deposits and lending rates, remained
unchanged; the spread serving as a major source of income to cover the overhead costs of
banks.
Table 14: Evolution of key interest rates in the market, in per cent
Interest rates (yearly averages) 2013 2014 2015 2016 2017 2018
Commercial banks savings (effective) 4.7 3.2 2.5 2.4 2.4 2.4
Commercial banks 3 months (effective) 5.6 4.2 3.0 2.9 2.9 2.9
Commercial banks 12 months (effective) 8.6 6.6 5.3 5.8 5.8 5.8
Source: BSL
3.6 Financial Soundness Indicators and Risks to the Banking Sector
The banking sector’s financial performance in 2018 remained strong, as expressed by key
Financial Soundness Indicators (FSIs), see Table 15. At the end of 2018, all commercial banks
met CAR of 15 per cent. The industry’s average CAR was 38.44 per cent, with one bank
recording the highest CAR of 261.44 per cent, mainly as a result of low quantum of risky
assets.
3.6.1 Earnings, profitability and efficiency
The banking sector’s profit before tax continued to be positive on year-on-year basis growing
by 25.96 per cent in 2018, but lower than the growth of 76.75 per cent registered in 2017.
27
Similarly, the industry’s net profit after tax grew by 26.25 per cent in 2018, compared with
76.52 per cent growth in 2017. The industry’s net interest income also recorded slower growth
of 28.11 per cent in 2018, compared with a growth of 67.12 per cent in 2017.
Table 15: Financial Soundness Indicators
Financial Soundness Indicators of the Banking Sector, 2013 - 2018, in percent , end of period
2013 2014 2015 2016 2017 2018
Capital Adequacy:
Regulatory Capital ratio*/ 30.1 30.2 34.0 30.7 34.2 38.4
Regulatory tier 1 capital ratio**/ 26.33 25.9 29.0 25.9 27.2 29.6
Asset Quality:
NPL to total gross loans 22.4 33.4 31.7 22.7 14.6 12.7
NPL (net of Provision) to Regulatory Capital 31.7 41.8 31.9 24.8 12.1 9.9
Earnings and Profitability:
Return on assets 2.1 2.7 3.2 2.9 5.3 6.1
Return on equity 9.9 14.9 18.3 22.3 25.6 27.25
Liquidity
Ratio of net loans to total deposits 31.81 26.44 24.4 24.4 26.17 27.7
Liquidity ratio***/ 72.5 78.9 83.3 85.5 66.9 67.9
Statutory minimum liquidity ratio***/****/ 29.3 29.7 30.4 30.1 33.9 33.1
Share of foreign currency dep in total deposits 38.5 26.5 32.0 38.9 37.1 39.3
*/Capital requirement over risk weighted assets (solvency ratio)
**/Core capital (Tier 1) over total assets
***/Calculated taking into account both domestic currency and foreign currency deposits. Liquid assets include
domestic currency cash in vault, claims on the BSL, claims on discount houses, and government securities
****/Effective November 2007, minimum liquidity, includes 40 percent of demand deposits and 20 percent of
quasi-money to be held either cash or treasury bills
Source: BSL
Figure 17 below, indicates that CAR has consistently improved overtime, while developments
in loan loss provision ratio (LLPs) and NPLs have been mixed, with a noticeable decline in
NPLs observed in recent periods.
28
Figure 17 : CAR, NPLs, and Provisioning
Source: BSL
Table 16 : Banking sector income and expenses, (Lebn)
Source: BSL
The banking sector remained profitable, recording an aggregate unaudited profit pre-tax of
Le484.39 billion at the end of 2018, with interest income from government securities as the
major contributor. All banks recorded unaudited pre-tax profit except for one bank, which
recorded a loss at the end of 2018. (See Table 16).
(0.40)
(0.20)
-
0.20
0.40
0.60
0.80
0
5
10
15
20
25
30
35
40
45
2012 2013 2014 2015 2016 2017 2018
Loan
Loss
Pro
v
NP
L &
CA
R
CAR NPLs LOAN LOSS PROVISION(change %)
29
The return on equity (ROE) increased to 27.25 per cent in 2018 from 25.6 per cent in 2017
mainly as a result of income from commissions and fees and the introduction of new financial
products in the industry. The general efficiency indicator, calculated as a ratio of operational
expenses to operational income, increased to 68.28 per cent in 2018 from 63.01 per cent in
2017. Also, the evolution in the net income per employee indicate that banking sector
productivity has improved (Figure 18).
Figure 18 : Selected earnings, profitability, and efficiency indicators
Source: BSL
3.7 Banking Sector Key Risks
While the banking sector in Sierra Leone during 2018 was relatively stable and sound, it
remained exposed to risks from other sectors of the economy as well as within the banking
sector.
3.7.1 Linkages from Macro to Financial System and vice versa
A stable financial system requires macroeconomic stability, characterized by stable
employment, predictable prices and high growth prospects. High unemployment and economic
stagnation impact negatively on financial stability via elevated credit risk perceptions,
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
0
10
20
30
40
50
60
70
80
90
2011 2012 2013 2014 2015 2016 2017 2018
Year
Leo
nes
Per
cent
Efficiency Indicators
Return on Assets (Income before tax /Total Assets) (LHS)
Return on Equity(Income before tax /Total Equity) (LHS)
Operational Expenses/Operational Income (LHS)
Net Income per employee (Le'000) (RHS)
30
constrained debt servicing capacity by borrowers and high interest rates risk by lenders as
insurance against borrower’s defaults.
Table 17: Macro-Financial Linkages
Source: IMF/BSL
The links and transmission channels between the financial system and the other sectors of the
economy, as well as feedback loops across sectors and policies involve examining how macro
shocks and policies affect the financial system (links from fiscal, external, and real sectors to
the financial system), and how developments in the financial system magnify or dampen the
impact of macro shocks or policies and feed back to the rest of the economy (links from financial
system to other sectors of the economy). Improving the understanding of the links among the
financial system, other sectors of the economy, and, ultimately, economic growth is critical for
comprehensive macroeconomic analysis.
From the matrix above, it could be highlighted that several channels that affect the linkages
from macro to financial and vice versa have impact on Sierra Leone financial system and
overall macroeconomic performance.
Lack of economic diversification and fiscal dominance in the economy of Sierra Leone have
important repercussions for financial system development and stability. Furthermore, Sierra
Leone is exposed to shocks from the external sector, predominantly in the form of commodity
price fluctuations such as the price of iron ore, including the impact of adverse weather
conditions on agricultural production. The low level of economic diversification is considered
31
one of the reasons of high loan concentration, which could trigger significant adverse systemic
impact, particularly in a small and shallow financial system like Sierra Leone.
High dollarisation is particularly vulnerable to exchange rate fluctuations, which is triggered
by the volatile external environment. A high level of dollarisation in Sierra Leone amplifies
the negative effects of exchange rate volatility to the financial system.
Fiscal dominance has had a significant adverse effect on banking markets, triggering negative
feedback on growth. Government arrears have been an important source of risk to financial
system stability and a deterrent to the supply of credit in Sierra Leone. Government arrears to
suppliers and contractors has led to rising NPLs and a tightening of banks’ lending conditions,
which also translate into reduced private credit and weakening economic growth. This cycle
then feeds back into additional fiscal revenue shortfalls. Government securities are attractive to
commercial banks for their relatively high yield, risk-free treatment, their often tax-exempt
status and the ease with which they can be used as collateral for refinancing needs.
The depreciation of the Leone in the past years had been risky to the overall economy through
instability in the foreign exchange market and heightening inflation, which put pressures on
banking sector with regard to satisfying the demand for foreign currency.
The overreliance by the banking sector on T-bills investments, especially its huge
concentration on investment in 1-year T-bills (2018: 99.71 per cent) has made commercial
banks less active in terms of delivering on their core mandate of financial deepening and
inclusion, as evidenced constantly in their record on very low loan-to deposit ratio - currently
at 27.17 per cent as against the prudential threshold of 80 per cent (see Figure 19).
32
Figure 19 : Ratio of net loans to total deposits 2013 – 2018
Source: BSL
As a risk-free and highly liquid assets, T-bills have been a key driver of substantial improvement
in core FSIs of the banking sector. Consequently, a summarised picture (see Figure 21) of the
evolution of total assets of the banking sector including its investment in government securities
and credit to private sector as a share of GDP, reveals that the business model can evolve as a
potential major risk to the banking sector in the medium term, especially when taking into
consideration the positive prospect of fiscal consolidation, but also the existing challenges
regarding the environment for doing business2. This is illustrated by the contributions to income
from the various activities (see Figure 20), in which investment in T- bills contributed the
highest, amounting to 43.85 per cent of the total income in 2018.
Figure 20 : The Income Composition, as of December 2018
Source: BSL
2 The 2019 World Bank Doing Business report ranked Sierra Leone 163rd out of 190 for ease of doing business and 55th for
starting a business. In terms of construction permits, it ranked 182nd and for trading across borders, it ranked 166th. The
worst ranking, 178th is for getting electricity. This is a vivid illustration of the infrastructure deficiencies in the country. In
fact, the rankings of all sub-categories mentioned are worse than those for 2016. The only exception is the ranking for
starting a business, which improved to 55th position in 2019 over 99th position in 2016.
32.41
26.9524.38 24.38
26.27 27.17
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
2013 2014 2015 2016 2017 2018
%
Year
43.85
0.43
29.54
26.18
0.00 10.00 20.00 30.00 40.00 50.00
Short Term Funds
Investments
Advances
Other Operating Income
Percentage
33
Figure 21 : Simplified current business model of the banking sector
Source: BSL
3.8 Banking Sector – Risk Outlook
In the near to medium-term, the banking sector will continue to be resilient and stable
especially when considering the planned increase in minimum paid up capital (2019-2021)
and government borrowing plan as agreed under the Extended Credit Facility program with
the International Monetary Fund (IMF). The income generated from government securities
will continue to feed in to all key FSIs.
The increase in the minimum statutory capital requirements will serve as an essential
instrument in strengthening the financial stability of the banking sector. This will ensure that
banks are in a better position to absorb risks, thereby improving their risk management. As
they bear the costs of those risks themselves, banks will be able to reduce their risks, through
efficient means of pricing. This will strengthen the banking sector as banks with a healthy
business model will be able to keep up their lending as economic activities increase.
The banking sector envisages that potential foreign currency mismatch may create further
pressure on the domestic currency. It was observed that foreign currency deposits in
percentage terms dropped marginally over the period 2016-2018. This trend, if continued,
may put further pressure on the Leone, especially in the case of unexpected foreign currency
demand. Looking at sectorial allocation of loans, it is evident that loans are largely channeled
-
5.0
10.0
15.0
20.0
25.0
30.0
2013 2014 2015 2016 2017 2018
Evolution of banking sector assets, Government borrowing from banks, and credit to
private sector as a share of GDP, in %
Total assets of the banking sector Government securities held by banks/GDP
Credit to private sector/GDP
34
towards commerce & finance. This sector is mostly involved in importation and therefore,
will often need to convert its loans obtained in Leone into foreign currency and subsequently
creating additional demand for foreign currency.
3.9 The State of Access to Financial Services in Sierra Leone
In an effort to achieve the goal of the National Strategy for Financial Inclusion (2017-2020),
the following activities were undertaken by the Bank of Sierra Leone:
The first Sierra Leone Fintech Challenge. The Challenge was organized by the Bank of
Sierra Leone in collaboration with the United Nations Capital Development Fund (UNCDF)
on Mobile Money for the Poor and Financial Sector Deepening (FSD) Africa. The program
is meant to encourage the development of Fintech solutions that are useful and highly relevant
to the people and businesses of Sierra Leone. It also fosters collaboration between regulators,
non-traditional market players, licensed financial institutions and other partners to pilot
innovative products, services or solutions in a fragile state context.
The Bank of Sierra Leone Regulatory Sandbox. The Regulatory Sandbox is intended to
serve as a safe space for innovators and regulators to evaluate new products and business
models that do not fit neatly into existing regulatory structures. This program is important as
it helps regulators to identify and mitigate potential risks to consumers and the financial
system that may result from these experiments. At present, there are four participants in the
BSL Regulatory Sandbox.
The Annual Providers Survey. This survey was undertaken by the UNCDF in 2018. The
Survey provides key insights into the state of the digital financial services (DFS) market in
Sierra Leone and is available in the UNCDF’s website.
Digitization of Smallholder Commercialization. The BSL in partnership with the Ministry
of Agriculture, launched the assessment of smallholder farmers to introduce DFS solutions.
A task force, which comprised the BSL, UNCDF and the European Union (EU) are currently
working with the Ministry of Agriculture to implement recommendations of the assessment.
35
Establishment of School Savings Clubs. Recognizing the significant role of the Non State
Actors (NSAs), the BSL contracted two local Non-Governmental Organizations (NGOs) -
Movement for Public Accountability and Development (MOPAD) and the African Youth
Coalition against Hunger (AYCAH), through the NSA Secretariat, to establish twenty eight
school savings clubs in secondary schools nationwide as the pilot projects. The objective was
to inculcate the habit of savings into school going children at a young age. These school
savings clubs are currently functioning.
The Geographic Information System (GIS) mapping. The main objective of the GIS
mapping was to determine areas or sectors that were underserved and ready for financial
service expansion. The mapping survey exercise was concluded in 2018 and the result,
showing data on financial inclusion access points is now in the public domain on the Bank of
Sierra Leone website.
3.10 STRESS TEST ANALYSIS
The BSL carries out yearly stress test to assess the resilience of the banking sector to possible
systemic risks. Shocks are applied to selected variables in a bid to determining banks’
resilience on a predefined prudential threshold. The stress test has been focused on three main
potential sources of vulnerabilities for the banking sector, namely credit, exchange rate
depreciation, and liquidity risks.
3.10.1 Credit risk
Scenarios were used to assess the impact on the banks’ capital due to potential further
deterioration in asset quality. The ratio of NPLs to total loans is taken as the main measure of
credit risk. The stress test scenario with credit risk assesses the resilience of banks to the highest
yearly increase of 40 per cent in NPL ratio recorded in 2018 under the assumption of constant
credit growth, no change in core capital, and with 20 per cent and 40 per cent provisioning of
new NPLs. The result shows that the banking sector is resilient and it is stands above the
threshold with CAR before and after the shock, showing 36.4 per cent (before the shock), 36.0
per cent (after 20 per cent shock) and 35.6 per cent (after 40 per cent shock).
36
Figure 22 : Stress Test Results on credit risk 2018
Source: BSL
3.10.2 Exchange rate risk
The CAR of the system remained resilient at 35.83 per cent and 35.23 per cent as per stress
test scenario of depreciation of Leone by 20 and 40 per cent, respectively. However, one bank
fell below the minimum threshold after the 40 per cent shock and recorded a negative CAR.
Figure 23 : Stress Test Results on exchange rate depreciation in 2018
Source: BSL
0.0%
50.0%
100.0%
150.0%
200.0%
250.0%
300.0%
CAR (%) (Before Shock) Revised CAR (%) (40% Shock) CAR Treshold Revised CAR (%) (20% Shock)
-50
0
50
100
150
200
250
300
%
Individual banks
CAR (Before Shock) Revised CAR (20% Shock)
37
3.10.3 Liquidity Risk
The stress test scenario on liquidity risk assessed whether the banking sector could meet sudden
demand for a large amount of cash withdrawal. In particular, the stress test shows for each
bank, how many days it would withstand a liquidity drain before breaching internationally
accepted liquidity ratio of 30 per cent. Commercial banks in Sierra Leone are subject to
prudential minimum liquidity ratio of 40 per cent for demand deposits and 20 per cent for
savings and time deposits. In this scenario we utilized minimum liquidity ratio of 30 per cent.
The stress test scenario assessed how resilient are banks under a 10 per cent call on demand
deposits, that is a 10 per cent daily withdrawal of demand deposits for five consecutive days.
The stress test results show that the banking sector could withstand severe shocks arising from
potential deposit withdrawals. However, the shock absorption capacity of the banking sector
is highly dependent on the market liquidity for government securities and the behaviour of
large depositors. The stress test results indicate that all banks can withstand a sizable liquidity
shock (a 10 per cent withdrawal per day of call deposits) for one day (except for two banks)
without going below the threshold of 30 per cent. On the third, fourth and fifth day of the same
amount of withdrawal of deposits, two commercial banks join the group of illiquid banks.
Table 18 Liquidity Stress Test
*/Liquid ratio is defined as the ratio of liquid assets to liquid liabilities. Liquid assets include cash, due from other
banks and government securities.
Results of the Liquidity Stress Test, data as of December 2018
Pre-shock Liquidity ratio of the banking system
Shock: 10 per cent daily withdrawal of deposits for
five days Post shock: Number of illiquid banks
After day 1 2
After day 2 2
After day 3 4
After day 4 4
After day 5 4
38
4.0. NON-BANK FINANCIAL INSTITUTIONS
4.1 Non-bank financial institutions
4.1.1 Landscape
There has not been much change in the landscape of other non-bank financial institutions. The
number of Deposit Taking Microfinance Institutions (DTMFIs) decreased from five (2017) to
four (2018), while Credit-Only Microfinance Institutions (COMFIs) and Financial Service
Associations (FSA) increased from 20 (2017) to 25 (2018) and from 58 (2017) to 59 (2018),
respectively. While the ownership structure (foreign vs domestic) and concentration ratio
remain almost the same as in 2017, the number of branches increased for both the DTMFIs
and the COMFIs from 32 (2017) to 40 (2018) and 95 (2017) to 110 (2018), respectively. With
respect to the number of employees in 2018, a slight decrease was observed with FSAs, a
decrease of 38 employees with DTMFIs due to the revocation of license of one DTMFI and a
slight increase with COMFIs and Community Banks (see Table 19).
Table 19 : Structure of other non-bank financial institutions
Institutions Number Foreign owned Number of branches
Number of
employees
Concentration ratio*, in
%
2017 2018 2017 2018 2017 2018 2017 2018 2017 2018
Deposit Taking Microfinance
Institutions 5 4 2 2 32 40 516 478 99.06 98.49
Credit-Only Microfinance
Institutions 20 25 3 3 95 110 439 545 98.10 98.29
Community Banks 17 17 Nil Nil 17 17 128 142 36.35 38.24
Financial Services
Associations 58 59 Nil Nil 59 59 186 185 Nil Nil
APEX Bank 1 1 Nil Nil 2 2 59 60 Nil Nil
National Cooperative Credit
Union Association 28 28 Nil Nil 7,033* 8,429* 31 41 Nil Nil
*Concentration = Assets of 3 largest non-bank financial institutions /Total Assets
**National Cooperative Credit Union Association = Membership, not branches
Source: Other Financial Institutions Supervision Department, BSL
4.1.2 Deposit Taking Microfinance Institutions (DTMFIs)
As at end December 2018, the resource base of the DTMFIs stood at Le221.10 billion from
Le164.86 billion in December 2017. The equity of the DTMFIs was mainly responsible for the
increase in the resource base as it stood at Le 43.25 billion in December 2018 from Le22.28
billion in December 2017. The DTMFIs gross loans and total deposits were Le126.71 billion
and Le 92.94 billion as at December 2018 respectively, while investment in government
securities was Le21.48 billion.
39
Figure 24 : Deposit-taking microfinance institutions deposits, loans, and assets
Source: OFISD, BSL
The increase in both the deposits and loans including total assets of the DTMFIs was driven by
a 44 per cent increase in the number of clients, when compared to 2017. However, there was no
change in the cost of financial intermediation by DTMFIs in 2018 as the spread remained very
high (Table 20).
Table 20 : Activities of the DTMFIs
Source: Other Financial Institution Supervision Department, BSL
Table 21 shows the main performance indicators used to analyse the operations of the DTMFIs
in Sierra Leone. In terms of Operational Self Sufficiency (OSS), the DTMFIs have been
successful in generating revenues to cover their operating costs. All DTMFIs met the MIX
requirement of 112 per cent, except for one.
Overall, the DTMFI’s ROA increased to 3.73 per cent in December 2018 from negative 0.17
per cent recorded in December 2017, indicating efficiency in the use of assets in generating
- 50,000,000 100,000,000 150,000,000 200,000,000 250,000,000
Total Deposits (Le’000)
Total Assets (Le’000)
Total Loans (Le’000)
2018 2017
Activities 2017(Le’000) 2018 (Le’000)
Total deposits 88,580,000 99,240,000
Total assets 164,860,000 221,100,000
Total loans 92,940,000 126,680,000
Total Equity 22,282,000 43,247,000
Interest rate on loans (average), in % 30 30
Interest rate on deposits (average), in % 4-5 4-5
Number of clients 35,444 50,914
40
income. However, two out of four DTMFIs did not meet the minimum MIX requirement of 2.1
per cent.
Table 21 : Selected performance indicators for deposit-taking microfinance institutions
Source: Other Financial Institutions and Supervision Department, BSL
With regard to Return on Equity (ROE), the DTMFI’s ROE in 2018 increased to 18.94 per cent,
which is considerably above the MIX benchmark of 14.7 per cent, thus indicating an effective
use of investment in generating earnings to sustain business operations. However, two out of
four DTMFIs recorded a ROE much below the MIX benchmark.
All DTMFIs recorded a satisfactory portfolio to assets, an indication that they are performing
their core function of operation. Overall, the DTMFIs portfolio to assets stood at 57.41 per cent,
slightly lower when compared to 2017.
As at December 2018, DTMFI’s portfolio at risk ratio stood at 10.47 per cent, which is far above
the required MIX standard of 4.8 per cent. Every single DTMFI failed to meet this MIX standard
implying the need for substantial improvement in credit management and loan recovery
strategy.
4.1.3 Credit-only Microfinance Institutions (COMFIs)
The resource base of the COMFIs in 2018 increased to Le98.26 billion from Le66.27 billion in
December 2017. As one of the key drivers of the increase in the resource base, equity rose by
50.99 per cent to Le52.04 billion from Le44.46 billion in December 2017. This increase was as
a result of huge increases reported in the current year profit by 167.26 per cent to Le7.92 billion
from Le2.71 billion in December 2017. The COMFIs’ gross loans rose by 55 per cent to Le83.79
Performance indicators 2017 2018
Income:
Interest Income (Le’000) 2,563,665 29,914,668
Expenditures:
Interest Expense (Le’000) (339,331) 4,596,138
Personnel and Administrative Expenses (Le’000) 2,675,472 28,696,614
Net Profit:
ROA (Net Income/Total Assets), in % (0.17) 3.73
ROE (Net Income/Capital), in % 1.17 18.94
Portfolio at Risk (PaR)≥15 days, 15.88 10.47
41
billion in December 2018 from Le54.08 billion in December 2017. Also, the number of
borrowers increased significantly by 46 per cent compared to 2017. However, the cost of
financial intermediation by COMFIs continued to remain very high.
Table 22 : Activity of COMFIs
Source: Other Financial Institutions and Supervision Department, BSL
In terms of Operational Self Sufficiency, two out of five COMFIs met minimum MIX
requirement of 112 per cent. One out of five COMFIs met the minimum MIX benchmark of
2.1 per cent for ROA. The yearly consolidated ROA increased to 4.72 per cent in 2018 from
3.59 per cent in December 2017.
One out of five COMFIs met the minimum MIX requirement of 13.7 per cent for ROE.
Consequently, as at end December 2018, the ROE ratio of five COMFIs together was below
the MIX standard, recording 9.04 per cent from 10.84 per cent in December 2017, indicating
a reduction in the yearly yield on shareholders’ equity.
Table 23 : Selected performance indicators of COMFIs
Source: Other Financial Institutions and Supervision Department, BSL
Activities 2017 (Le’000) 2018 (Le’000) % change
Total Loans 54,081,069 83,794,467 55
Total Assets 66,966,796 98,263,396 47
Total Equity 44,460,000 52,019,946 51
Interest Rate on Loans (Average), in % 30-35 30-35 0
Number of Borrowers 55,821 75,821 46
Income: 2017 2018
Interest Income (Le’000) 18,460,460 27,861,821
Expenditures:
Interest Expense (Le’000) 29,146 403,600
Personnel and Administrative Expenses (Le’000) 14,860,104 17,912,014
Net Profit:
Current year profit (Le’bn) 2.71 7.26
ROA (Net Income/Total Assets, in % 3.59 4.72
ROE (Net Income/Capital), in % 10.84 9.04
Portfolio at Risk,≥40 days 15.30 4.68
42
The Industry average outstanding loan was satisfactory. However, one out of five recorded a
high outstanding loan, indicating ineffective loan management. Consolidated yield on gross
loans was satisfactory, which accounted for 24.90 per cent in December 2018.
Portfolio at Risk > 40 days. Consolidated Portfolio at Risk (PaR) for all five COMFIs covered
in this report was 4.68 per cent in December 2018, which is slightly below the MIX
requirement of 4.80 per cent. Two out of five COMFIs covered in this report met the MIX
requirement.
4.2 APEX Bank
The APEX Bank Sierra Leone Limited is focused on improving the quality of life of
economically disadvantaged Sierra Leoneans (mostly from rural communities) through the
provision of inclusive and sustainable financial services through community banking system.
The APEX Bank was licensed mainly to provide financial services to a network of rural finance
institutions in Sierra Leone, and it is regulated by the BSL, who provides oversight under the
Other Financial Services Act 2001. The Apex bank’s three core functions include:
- Administration of an Agricultural Finance Facility (AFF) and the investment of capital
into the CBs by outside shareholders to improve access to rural finance;
- Provision of inspection functions and limited supervisory duties to FSAs and CBs;
- Provision of technical assistance / support, including training.
4.2.1 Activity of the APEX Bank
The APEX Bank resource base rose by Le9.48 billion to Le48.68 billion in December 2018
from Le39.20 billion in December 2017. This attributed to an increase in deposit mobilisation
by Le0.3 billion to Le2.03 billion in December 2018 from Le1.73 billion recorded in December
2017. The system recorded a loan portfolio of Le14.64 billion, reflecting an increase of Le1.07
billion as at 31 December 2018 from Le13.56 billion in December 2017.
43
Table 24 : Activity of APEX Bank
Source: Other Financial Institutions and Supervision Department, BSL
4.2.2 Performance of the APEX Bank.
APEX Bank did not meet the minimum MIX requirement of 2.1 per cent in December 2018
and December 2017 respectively in ROA. Despite an improvement in the ROA to a negative
15 per cent in December 2018 from negative 18 per cent recorded in December 2017, the use
of asset to generate income remained inefficient.
Table 25 : Selected performance indicators of APEX Bank
Source: Other Financial Institutions and Supervision Department, BSL
Due to the losses that APEX Bank has been incurring, the ROE ratio deteriorated further as it
went to negative 67 per cent in December 2018 from negative 65 per cent recorded in
December 2017, indicating ineffective yield in investment from the shareholders’ fund.
The APEX Bank’s NPLs was 35.4 per cent in December 2018, an increase of 10.1 percentage
points from 25.3 per cent in December 2017 far above the tolerable limit of 4.8 per cent
required for non-bank financial institutions.
Activity 2017 2018
Total Deposits (Le’000) 1,728,497 2,030,656
Total Assets (Le’000) 39,202,462 48,682,039
Total Loans (Le’000) 13,557,440 14,627,923
Interest Rate on Loans (Average), in % 12 12
Interest Rate on Deposits (Average), in % n/a n/a
Number of Clients 76 76
2017 2018
Income:
Interest Income (Le’000) 392,263.93 938,656.74
Expenditures:
Interest Expense (Le’000) 0.00 0.00
Personnel and Administrative Expenses (Le’000) 8,625,527 10,130,204
Net Profit:
ROA (Net Income/Total Assets), in % (18.00) (15.00)
ROE (Net Income/Capital), in % (65.00) (67.00)
Non-Performing Loans (NPL), in % 25.4 35.4
44
4.3 Community Banks (CBs)
4.3.1 Activity of Community Banks (CBs)
The community banking sector recorded a resource base of Le82.37 billion in December 2018
from Le61.25 billion recorded in December 2017. Two CBs had the largest proportion of
Le15.95 billion and Le9.36 billion accounting for 19.35 per cent and 11.46 per cent
respectively of the community banking sector resource base in December 2018.
The lowest proportion to the Resource base was Le1.85bn accounting for 2.25 per cent of the
community banking sector. The increase in the resource base was attributed to deposit
mobilization by 45.66 per cent to Le42.79 billion from Le29.47 billion recorded in December
2017. The community banking sector recorded a loan portfolio of Le57.14 billion as at end
December 2018 (See Table 26).
Table 26 : Activity of Community Banks (CBs)
Source: Other Financial Institutions Supervision Department,, BSL
The community banking sector increase its clientele base to 15 per cent compared to 2017.
Yet, the cost of financial intermediation by CBs remains unchanged and high (See Table 26).
4.3.2 Performance of Community Banks (CBs).
The consolidated pre-tax profit as at end December 2018 was Le5.58 billion. All CBs made
profit as at 31st December 2018, except for one that recorded a loss of Le0.39bn. However,
year-on-year analysis shows a decline in operating performance as pre-tax profit recorded a
decrease of Le1.86bn (24.95 per cent) from Le7.44 billion in December 2017. The
profitability of CBs declined partly due to the loss made by one CB and the provisioning for
the high NPLs in the community banking sector.
Activity 2017(Le’000) 2018(Le’000) % change
Total Assets 61,251,668 82,368,772 34
Total Deposits 29,470,000 42,786,941 46
Total Loans 43,783,209 57,139,619 31
Interest Rate on Loans (Average), in % 26 26 0
Number of Clients 79,665 91,855 15
45
Table 27 : Selected performance indicators of the Community Banks
Source: Other Financial Institution Supervision Department, BSL
In terms of Operational Self Sufficiency (OSS), seven (7) out of seventeen (17) community
banks covered in this report have met the MIX standard of 112 per cent.
The ROA ratio was 5.96 per cent in December 2018, an increase of 12.37 from its level in
December 2017. This ratio was above the MIX minimum requirement of 2.1 per cent. Overall,
the community banking sector satisfactorily maximised the utilisation of its assets in revenue
generation over the one-year period.
With regard Return on Equity (ROE), no significant difference was observed between 2017
(16.08) and 2018 (16.10). Five (5) out of the seventeen (17) CBs have met the MIX standard
of 13.6 per cent, indicating that some of the community banks will not be able to pay dividends
to shareholders.
All CBs recorded PaR>30 days far above the tolerable limit of 4.8 per cent. One CB recorded
a level as high as 71.74 per cent and another 39.63%. This implies that the loan portfolio of
these CBs is at higher risks and there is potential for future losses.
4.4 Financial Services Associations (FSAs)
4.4.1 Activity of Financial Services Associations (FSAs)
The resource base of the FSAs in December 2018 increased by Le8.07 billion to Le55.85 billion
from Le47.78 billion in December 2017, driven by a slight increase in ROE when compared to
December 2017. Total loans rose by Le8.14 billion to Le45.75 billion as at December 2018
from Le37.61 billion in December 2017. Average interest rate on loans remains unchanged at
Selected indicators 2017(Le’000) 2018(Le’000)
Income:
Interest Income 9,280,549 11,442,435
Expenditures:
Interest Expense
Personnel and Administrative Expenses 6,686,562 9,251,878
Net Profit:
ROA (Net Income/Total Assets), in % 4.80 5.96
ROE (Net Income/Capital), in % 16.08 16.10
Portfolio at Risk(PaR), in % 20.82 22.44
46
(27 per cent), and the number of clients of the FSAs increased by 15 per cent between December
2017 and December 2018.
Table 28 : Activity of the Financial Services Associations (FSAs)
Source: Other Financial Institution Supervision Department BSL
4.4.2 Performance of Financial Services Associations (FSAs)
The interest income of FSAs doubled as at 31st December 2018 when compared to December
2017. It rose from Le5.46 billion in 2017 to Le 10.87 billion in 2018 (see table 29), mainly due
to increases in income from the rise in total loans and loans recovery. Interest expense on the
other hand equally rose by Le0.19 billion to Le 0.24 billion in December 2018 from Le0.05
billion in December 2017. Personnel and administrative expense also rose by Le3.78 billion to
Le6.62 billion in December 2018 from Le 2.85 billion in December 2017.
Table 29 : Selected Performance Indicators of FSAs
Source: Other Financial Institution Supervision Department BSL
The consolidated ratio of the ROA for FSAs in December 2018 was 7.8 per cent, an increase
of 1.4 percentage points from 6.4 per cent in December 2017, signifying that yield from the
use of assets was improving.
Activity 2017 2018 %
Total Loans (Le’000) 37,606,702 45,752,843 22
Total Deposits (Le’000) Nil Nil
Total Assets (Le’000) 47,781,828 55,850,724 17
Interest Rate on Loans (Average), in % 27 27 0
Number of Clients 30,684 35,228 15
Selected performance indicators 2017 2018
Income:
Interest Income (Le’000) 5,457,229 10,868,260
Expenditures:
Interest Expense (Le’000) 50,821 241,882
Personnel and Administrative Expenses (Le’000) 2,847,233 6,622,997
Net Profit:
ROA (Net Income/Total Assets), in % 6.4 7.8
ROE (Net Income/Capital), in % 19.16 22.78
Portfolio at Risk(PaR) 6.0 7.0
47
The consolidated ratio of the ROE increased by 3.62 percentage points to 22.78 per cent in
December 2018, from 19.16 per cent in December 2017, and was above the minimum MIX
requirement of 13.7 per cent, thus indicating satisfactory returns on shareholders’ equity.
In terms of Non-Performing Loan (NPL), the FSAs failed to meet the MIX standard of 4.8
per cent in December 2018.The NPL was 7.0 per cent in December 2018 increasing by 16.67
per cent from 6.0 per cent in December 2017, thus indicating weak credit management.
4.5 National Cooperative Credit Union Association (NCCUA)
4.5.1 Activity of the NCCUA
The performance of the NCCUA over the period under review has been impressive, with total
membership improving by 19.84 per cent from 7,033 members as at end December 2017 to
8,429 members in December 2018, which constitutes 4,145 males, 4,284 females, and 607
groups. With presence all over the country, the NCCUA have raised shares of Le1.32 billion
in December 2018, representing a 17.10 per cent improvement from the Le1.09 billion in
December 2017.
Table 30 : Activity of the NCCUA
Source: Other Financial Institution Supervision Department, BSL
The loan portfolio of the NCCUA amounted to Le6.13 billion in December 2018 (up by
Le1.86bn or 43.69 per cent). The NCCUA provide loans only to its members, who buy shares
and constantly build up their savings with the NCCUA. The total savings in December 2018
increased to Le4.69 billion from Le3.76 billion recorded in December 2017.
Activity 2017(Le’000) 2018(Le’000) % change
Total Loans 4,266,000 6,130,000 44
Total Savings 3,757,000 4,691,000 21
Total Shares 1,091,000 1,316,000 25
Loans Outstanding 4,266,000 6,130,000 44
Membership (Number) 7,033 8,429 20
48
4.6 Mobile Money Providers
4.6.1 Activity of the Mobile Money Providers
There are two licensed mobile money financial service providers in the country. The number
of active registered mobile money users as at December 2018 was 405,664, with 10,378
registered agents throughout the country as against 4,559 recorded at end December 2017. On
average, the mobile money service providers conducted 464,571 transactions as at end
December 2018, while the value of transactions stood at Le71, 858,883,415 as at end
December 2018.
Table 31 : Activity of the Mobile Money Providers
Source: Other Financial Institutions Supervision Department, BSL
4.7 Pension Sector: The Evolution and Operational Overview of NASSIT
4.7.1 Regulatory framework
The National Social Security and Insurance Trust (NASSIT) is a statutory Public Trust charged
with the responsibility of administering Sierra Leone’s National Pension scheme. According
to the NASSIT Act No. 5 of 20th July 2001, the Scheme was established as a corporate body
to provide retirement and other benefits to meet the contingency needs of workers and their
dependents, and to provide for other related risks.
Generally, the NASSIT Scheme is a long-term insurance scheme that offers protection against
risks related to old age, death and invalidity. Membership with the scheme is compulsory for
all workers and optional for the self-employed persons and workers in the informal sector –
meaning that it is incumbent on all employers to ensure that their workers are registered, and
contributions paid on their behalf. The Scheme has the following basic features:
1) It is contributory; that is, it is financed from contributions by employers and employees.
2) It is a Defined Benefit (DB) Social Insurance Scheme, where members contribute
during their working life and are paid benefits at the onset of any of the three
contingencies connected with old age, invalidity and death.
Activity 2017 2018
Number of Agents 4,559 10,378
Number of Accounts 426,797 495,664
Number of transactions 1,892,227 464,571
Value of transactions (Le) 409,011,482,214 71,858,844,415
49
As a contributory pension scheme, its revenue results from three main sources:
1) Contributions from employers and workers, including the self-employed and informal
sector workers;
2) Investment income; and
3) Penalties resulting due to delays in payment of contributions or in transmission of the
statements (declarations) of salary.
Overall, there are two main types of expenditures for the scheme: (i) benefits payments, and
(ii) administrative expenditure (operating and investment costs).
The benefits are of three types namely, retirement benefit, survivor, and disability benefits.
These benefits are long-term in nature, but there are several grants which are also paid to
participants.
4.7.2 Activities of the NASSIT
Compared to 2017, the number of new entrants as well as insured membership into the pension
scheme in 2018 has declined by 25.1 per cent and 7.1 per cent respectively. At the same time,
the value of contributions and benefits payment has increased substantially by 14.8 per cent
and 44.4 per cent respectively (see Table 32). In 2017, NASSIT initiated work on the
establishment of a social security court to enforce compliance with provisions of its Act.
Table 32 : NASSIT: Key Activity Indicators 2017-2018
Growth
in % Indicators 2017 2018
Insured membership (number) 245,452 218,844 -10.8
New entrants (number) 12,215 9,149 -25.1
Contribution* (Le'000) 475,754,548 441,514,627 -7.1
Benefits payment* (Le'000) 128,206,440 184,847,470 44.2
Total assets* (Le'000) 1,476,655,482 1,620,145,041 9.7
Total liabilities* (Le'000) 15,728,529 11,965,855 -23.9
*Estimate Source: NASSIT
The NASSIT Board, when approving any investment, takes into consideration the following
criteria: (i) the safety and yield of the investment; (ii) the liquidity of the investment; (iii) the
need to maintain the real value and spread of the investment;(iv) the maintenance of the fund
50
and diversification of the portfolio of the investment; and (v) the harmony of the investment
with the public interest. As shown in the Table 33, in 2018, there has been a significant shift
within the treasury portfolio of instrument and class, as evidenced by an increase in the share
of instruments held with commercial banks (41.49 per cent) compared to its share in 2017
(29.80 per cent). At the same time, NASSIT has reduced its exposure to the government as
evidenced by a decrease in the share of instruments held with government in 2018 (58.06 per
cent) compared to its share in 2017 (70.20 per cent). In 2018, there was no new investment in
government securities due to the failure of government to honour matured obligations.
Subsequently, the government and NASSIT have agreed to convert the existing debt liabilities
into a bond. The scheme also faced the challenge of recovering contribution arrears, mainly
from public institutions. The slow progress in developing the capital market continued to limit
the space for long-term securities trading.
Table 33 : NASSIT's Treasury Portfolio by Instrument and Class (Le'000)
2017 Share (%) 2018 Share (%)
Instruments with Com. Banks 149,920,796 29.80 249,700,101 41.94
Call Deposit 7,080,000 1.51 50,080,000 8.76
Fixed Deposit 84,000,000 17.68 154,000,000 26.77
Private Placements 49,840,796 10.62 46,620,101 6.41
Instruments with Government 429,599,659 70.20 441,806,107 58.06
Treasury Bills 49,200,000 8.45 - 0.00
2 - 5 Years Government Bonds 88,558,800 18.86 81,558,800 14.27
Govt. Arrears to be
Converted to Serial Bond 201,840,859 42.99 250,247,407 44.79
Total 469,520,455 100.00 571,506,208 100.00
Source: NASSIT
The share of instruments in the long-term assets profile of NASSIT was broadly unchanged
during 2017-2018. As shown in the Table 34, while the share of corporate debenture and equity
remained the same in 2017, the share of investment in real estate property in 2018 was 27 per
cent lower than the 30 per cent in 2017, whereas the share of social projects increased from 21
per cent in 2017 to 24 per cent in 2018.
51
Table 34 : Long-term assets profile 2017-2018 (Le'000)
Type of Instrument 2017 Share in % 2018 Share in %
Corporate Debenture 241,549,576 26 241,549,576 26
Equity (Portfolio Companies) 210,840,744 23 210,840,744 23
ETIs (Real Estate Property) 272,949,482 30 244,804,711 27
STI Social Projects (REP) 190,622,550 21 226,125,657 24
Total 915,942,444 100 924,299,678 100 Source: NASSIT
4.7.3 Challenges facing NASSIT and Associated Risks
Extension of Coverage. The Sierra Leone economy is basically rudimentary with retail trading
and subsistence agriculture employing the bulk of the labour force. Such a set-up creates a
large presence of the self-employed/informal sector/domestic workers that have threatened
the expansion of the NASSIT Scheme over the years. The heterogeneous nature of the
informal sector makes it difficult for them to be covered by the current NASSIT scheme. Over
85 per cent of the active workforce in Sierra Leone are in the informal sector economy.
Although NASSIT has registered a considerable number of institutions and employees that
are now members of the scheme, there is still much to be done to get the informal sector and
the self-employed on board. However, NASSIT has initiated measures to provide an attractive
scheme for workers in the informal sector. Also, the introduction of Social Health Insurance
and Employment Injury Insurance to the existing three contingencies is expected to improve
social protection coverage/benefits for NASSIT members.
Box 2: The payment of contributions (as described in the NASSIT Act)
The employer deducts 5% from the earnings of an employee at the end of every month as the
employee’s Social Security contribution;
i. The employer then adds 10% of the employee’s earnings as that employer’s
contribution on behalf of the employee;
ii. The total 15% social security contribution paid to NASSIT within fifteen days after the
end of the month. Late payment attracts interests and penalties
iii. The self-employed/voluntary contributors pay 15% of their declared income.
iv. If a person is concurrently employed by two or more contributing employers, all the
employers must pay contributions on the wages/earnings given to that employee.
v. No employer is allowed by law to reduce, whether directly or indirectly, the earnings or
other emoluments of any member of the Scheme.
vi. Contributions are charged on the employees’ basic income
vii. All directors of companies are considered employees if they are engaged under a
contract of service and paid a salary on top of fees.
viii. Contributions are payable for part-time/casual employees as well.
52
Enforcing Compliance. Full compliance with regard to the payment of social security
contributions is always an uphill task for most Social Security institutions in the region. The
situation in NASSIT is in no way different. Now that the work towards reforming laws to make
the scheme attractive to workers in the informal sector has started, more robust and proactive
measures are expected to be adopted by NASSIT to not only increase compliance in terms of
payments of contributions, but also to retrieve contributions arrears. Also, NASSIT intends
having a special court on compliance matters.
Effective ICT Infrastructure for Payment of Benefits. Benefits payments involve processes to
ensure benefits are paid correctly. The availability and reliability of accurate information from
both members and our operational system has posed serious challenge to this process.
Management has, however commenced the process of developing a new and improved
operating system that will overcome challenges posed by the current ICT infrastructure.
Investment Environment. The investment of the NASSIT fund is done within a macroeconomic
framework as set out by the Government of Sierra Leone, which in turn is influenced by global
trends in economic aggregations. Sierra Leone, like most other countries in the sub-region, has
limited investment opportunities for pension funds. Also, fluctuation of macroeconomic
variables has been a challenge to NASSIT’s investment efforts. A depreciating Leone to major
international currencies, coupled with increasing inflation, unattractive interest rates and low
income of workers are serious concerns. This affects NASSIT’s contributions income,
investment and administrative expenditures. The financial market is still underdeveloped.
4.8 Insurance Sector
4.8.1 Regulatory and Supervisory Authority
The Sierra Leone Insurance Commission (SLICOM) is responsible for the supervision and
licensing of insurance companies, brokers, loss adjusters, and agents in Sierra Leone. The
Insurance Act 2000 established the Sierra Leone Insurance Commission (SLICOM) as an
autonomous body. This Act was repealed and replaced by the Insurance Act 2016 after
consultations with all stakeholders. To improve on the limitations of the old Act, the following
compulsory insurance products were incorporated in the new Act.
53
1) Compulsory Tenantable Property Insurance.
2) Compulsory Employers Liability Insurance for Employers with more than five employees.
3) Compulsory Public Liability Insurance - all buildings above two storey under construction.
4) Compulsory Professional Indemnity Insurance for the medical profession.
Further to its objective “to ensure an effective administration, monitoring, supervision,
regulation and control of the business of Insurance in Sierra Leone” and in its capacity as an
insurance supervisor, the SLICOM’s foremost focus is to create the enabling environment,
where public confidence could be enhanced and sustained in the insurance industry by ensuring
that:
1) Policyholders are fairly treated in accordance with the terms and conditions of insurance
contracts; and
2) Insurance companies operating in the Sierra Leone market are financially solvent and
capable of delivering on their promises to policyholders.
In addition to the foregoing, SLICOM also ensures:
1) The insuring of government properties and assets.
2) The ECOWAS Brown Card/Pool office was established in collaboration with the
Commission and the Sierra Leone Insurance Association (SLIA) is charged with the
responsibility of managing the operations of ECOWAS Brown Card and Insuring of
Government properties and assets with the locally registered insurance companies.
3) SLICOM has set up Complaints Bureau where aggrieved members of the public will lodge
their complaints free of cost on matters of claims settlement.
4.8.2 Activity of the insurance sector
The total assets (excluding life insurance) of the insurance industry, at the end of 2018,
amounted to Le274,974.07 Mn, representing 5 per cent increase when compared to 2017. The
activity of the insurance industry continues to be dominated by non-life insurance, which
represents 76.0 per cent of premiums of insurance market, while the remainder accounts for
life insurance (see Table 35).
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Table 35 : Activity of the insurance industry (Le millions)
Summary of key activities of insurance industry, Le (millions)
2016 2017 2018
Total assets 212,797.96 261,880.06 274,974.07
Total premium 111,400.28 148,967.65 156,416.04
Total premium: non-life 90,574.86 114,229.05 118,890.50
Total premium: life 20,725.42 45,748.60 47,525.54
Reinsurance ceded 19,898.44 27,676.96 47,464.92
Claims paid 24,519.10 24,886.86 26,141.20
Claims outstanding 7,518.19 21,664.40 22,746.47
Source: SLICOM
After its huge increase by 72 per cent in 2017 (compared to 2016), the life insurance premium
growth rate in 2018 dropped to only 5 per cent, which is the same as the growth rate of non-life
insurance premium in 2018.
Figure 25 : Evolution in premiums
Source: SLICOM
33.8
25.0
72.4
5.0
5.0
5.0
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0
Total premium
T.premium: non-life
T. premium: life
Growth rate of total premium and its components, in %
2018 2017
55
Figure 26 : Evolution in claims
Source: SLICOM
As shown in the figure 28, after significantly increasing by 188 per cent in 2017 (compared
to 2016), claims outstanding growth rate in 2018 dropped to only 5 per cent, which is the same
as the growth rate of claims is paid in 2018.
Table 36 : Asset and Liability Composition of the Insurance Industry
Source: SLICOM
In 2018, the value of insurance companies’ assets amounted to Le274,974 mn, marking an
annual increase of 5.0 per cent and represented deceleration in growth when compared to the
5.8
188.1
5.0
5.0
0.0 50.0 100.0 150.0 200.0
Claims paid
Claims outstanding
Growth rate of claims paid and claims outstanding, in %
2018 2017
Asset and Liability Composition-Non-Life Insurance, Le(millions)
Type 2016 2017 2018
Cash 16,556 23,487 24,661
Investment 118,434 136,043 142,856
Receivables 56,008 80,532 84,559
Property, Plant & Equipment 19,075 18,098 19,003
Others 2,726 3,719 3,905
Total Assets 212,798 261,880 274,974
Technical Provisions 29,152 49,391 51,860
Short Term Liabilities 51,892 53,400 56,070
Long Term Liabilities 34,207 47,864 50,258
Other Liabilities 1,717 1,270 1,334
Equity 95,830 109,955 115,452
Total Liabilites and Euqity 212,798 261,880 274,974
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annual growth rate of 24.0 per cent in December 2017. The structure of assets of insurance
companies continued to be dominated by investments, which represent 52.0 per cent of total
assets. The rest is represented by receivables, cash, and property, plant & equipment (see
Table 36). Within liabilities, equity represents 42.0 per cent of total liabilities, while the
remainder is comprised of short-term liabilities (20 per cent) and long-term liabilities (18 per
cent). When compared to 2016, technical provisions increased in 2017 by 69.0 per cent, but
this growth decelerated in 2018 as technical provisions grew 5.0 per cent compare to 2017
and their share in total liabilities remains at 19 per cent.
Table 37 : Breakdown of investments, Le Mn.
Type 2016 2017 2018
Government securities 18,149 54,770 56,458
Equities 95,840 109,955 115,452
Fixed deposits & bonds 45,692 11,466 11,944
Mutual funds
Investment in property 48,952 40,971 44,019
Investments in related parties 15,650 29,947 41,444
Other
Total 214,264 245,998 258,298
Source: SLICOM
The above table reveals that the share of equities has been constant in last three years (45. 0
per cent), whereas the share of government securities and investments in related parties has
increased from 8.0 per cent and 7.0 per cent (2016) to 22.0 per cent and 12.0 per cent (2018),
respectively.
4.8.3 Performance of the insurance sector
The performance of the insurance industry was mixed during the last three years. The
investment yield, retention ratio, and return on assets continue to improve year after year. At
the same time, though at solid levels, the return on equity as well as combined ratio have
slightly deteriorated.
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Table 38 : Selected performance indicators of the insurance industry, in %
Indicators
Life insurance Non-life insurance
2016 2017 2018 2016 2017 2018
Investment yield 2 2 2 4 4 4.25
Retention ratio 86 85 89.45
Prop of investments to total assets 0.45 0.55 0.60
ROE 16 14 14.47
ROA 52 57 57
Expense ratio 45 45 45 45 49 51.48
Net insurance risk ratio 1.14 1.24 1.40
Gross insurance risk ratio 1.46 1.57 1.65
Claims reserve ratio 1.05 1.88 0.05
Claims ratio 44 44 48 14 12 12.44
Combined ratio 58 61 64.81
Growth rate in written premium -4 44 5 Source: SLICOM
4.8.4 Insurance sector concentration, penetration, and density
The market concentration is ongoing with top insurers continuing to increase their market
shares. In 2018, about 90 per cent of the life insurance premiums were underwritten by five
companies, while 92 per cent of non-life insurance premiums were also underwritten by five
companies.
Table 39 : Insurance industry concentration, in per cent
Type of insurer 2016 2017 2018
Life insurers
Top five players (Premium) 92.5 86.1 90
Non-Life insurers
Top five players (Premium) 91.42 87.41 92
Source: SLICOM
As shown in Table 39, insurance penetration and density rates in Sierra Leone remain very
low and it is similar with neighboring and other countries in the region3
3 According to PricewaterhouseCoopers Market Research Centre analysis based on Axco (2018), insurance
penetration rate across selected countries in SSA in 2017 was as follows: Ghana (1.10 per cent), Gambia (0.67
per cent), Sierra Leone (0.41 per cent), Nigeria (0.40 per cent), and Guinea (0.04 per cent).
58
Table 40 : Insurance penetration and density rate
2016 2017* 2018*
Insurance penetration (% of premium to GDP) 0.46 0.54 0.48
Insurance density (premium to the total population) 2.09 2.62 2.42 */. Estimated
Source: SLICOM, SSL, and BSL
4.8.5 Key challenges and recent initiatives in the insurance sector
Credit Risk: The credit control is very challenging for insurance companies. The insurance
companies are losing a lot of money as a result of non-payment of the Premiums by the
insuring public. This has led to the accumulation of huge outstanding premiums over the
years. In order to mitigate this, the Commission (SLICOM) collaborated with the Insurance
Companies for the introduction of “NO Premium, No Cover” regime in the Insurance Act
2016.
Reputational Risk: Public confidence in the Insurance sector is still low, especially in the
payment of claims. The Commission has made it a mandate to ensure that genuine claims are
settled promptly and equitably.
Low Capitalisation: The need to increase capital cannot be over emphasised. Adequate capital
enhances growth and development of the Insurer. The Commission is determined to review
the present capital requirements of insurers to meet current economic trends.
Low Capacity: Capacity in Insurance means a company’s ability to cover big risks. All
companies, no matter how large, require greater capacity than their own resources can
provide. They secure this extra capacity through reinsurance, taking into consideration also
their capital base. Adequate reinsurance arrangement is a requirement of every insurer as
prescribed by the Insurance Act 2016. Low capacity is a challenge in handling large risks.
Consequently, the Commission will ensure that each insurance company has solid reinsurance
arrangement and will also increase the statutory Deposit and paid up capital of all insurance
companies in that country.
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Not enough professionals: Human resource development in Insurance remains a challenge for
the sector. However, the Commission in its National Development Plan for the insurance
industry has proposed the establishment of a training institute for personnel of the Industry.
Enforcement of Compulsory Insurance: A major driver of growth for the Insurance Industry
in challenging economic times like these is the enforcement of the Compulsory Insurance
Provision of the Insurance Act 2016. The Commission has taken steps to consolidate
initiatives that will establish a sustainable framework for effective enforcement of the
Compulsory Insurances. With the intervention of the Inspector General of Police and the
Ministry of Finance, including other stakeholders like Fire force, NRA, City Council, Medical
and Dental Council, this will be attained before the end of the year 2019.
Box 3: Different types of policies presently offered by the insurance industry
1. Fire Insurance
2. Motor Insurance
4. Workmen Compensation Insurance
4. Public Liability Insurance
5. Products Liability Insurance
6. Contractors All Risk Insurance
7. Professional Indemnity Insurance
8. Business interruption Insurance
9. Burglary Insurance
10. Fidelity Guarantee
11. Bond Insurance
12. Personal/Group Accident Insurance
14. Cash –in- Transit/Safe Insurance
14. Goods –in- Transit Insurance
15. Erection All Risk Insurance
16. Machinery Breakdown Insurance
17. Computer All Risk Insurance
18. Electronic Equipment Insurance
19. Contractors Plant/Machinery
Insurance
20. Marine Hull Insurance
21. Marine Cargo Insurance
22. Marine and Aviation Insurance
24. Life and Health Insurance
24. Group Life Assurance
25. Individual Life Assurance
26. Life and Pension Assurance
27. Endowment Policy
28. Term Assurance
29. Whole Life Assurance
Risk based supervision: The financial condition reports received from some companies are
being reviewed for appropriate attention. It is expected that before the end of 2019, the
Commission will present reports on the assessment of their risks and solvency for the first
year 2019. The road map to Risk-Based Supervision would be issued and the Commission
shall work with it strictly, while amending the program as we all learn.
Information technology: To prepare the grounds for innovation and competitiveness, the
Commission would set up an Information Technology Working Group that will develop a
60
framework for balanced adoption of technology driven innovation in the Industry. The terms
of reference will include addressing the risks, opportunities and strategies for cost-effective
deployment of Information Technology. To this, end the Commission hopefully intends to
work with the Office of the Presidential Aide on Innovation and Technology.
Review of the Motor Insurance Tariff: The Commission has realised that the current motor
premium is inadequate in relation to the kind of risks covered by the insurance companies.
Therefore, the Commission will work with Sierra Leone Insurance Association (SLIA) to
ensure efforts are made to have the Motor Tariff revised, which will capture the automatic
in-built cover for ECOWAS Brown Card. This is expected to be completed by October 2019.
Learning events for directors: The vision of the SLICOM is to create “a trusted Insurance
Industry”. As part of the effort to achieve this, SLICOM intends to adopt risk-based
supervision and will be organising seminars for Directors of insurance companies so as to
increase their awareness about risk-based supervision. Therefore, the major thrust of
SLICOM’s improvement in the performance of insurance institutions is enhancing the level
of corporate governance in each insurance company/brokerage.
Introduction of Insurance as a subject in Junior Secondary Schools: Efforts have been made
to finalise the introduction of Insurance as a subject in Junior Secondary Schools. The
requisite text books have been finalised and would be distributed to Junior Secondary
Schools so that the program would start during the next school year.
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5.0 FINANCIAL MARKET INFRASTRUCTURE IN SIERRA LEONE
5.1 Payments and securities settlement systems
Promotion of the safe, efficient and smooth operation of the payment systems represents vital
objective of the BSL’s payments policy. However, the payments system in Sierra Leone is
still dominated by large cash transactions. Regarding non-cash transactions, they are
categorised into retail and large value transactions, which continued growing during 2018
(Table 41).
Table 41 : Real Time Gross Settlement (RTGS) Transactions in 2018
Source: Banking Department, BSL
The Automated Clearing House (ACH) is the retail payment system through which a vast
number of payment transactions (both paper-based and electronic) are cleared. These are
mainly low value (not more than fifty million Leones), high-volume retail payment Cheques.
Month Volume, number Value, in Le
January 8354 3,655,800,090,363
February 8573 3,763,612,618,465
March 8054 3,439,610,836,186
April 7183 2,864,661,267,104
May 9691 3,792,900,255,284
June 8000 4,116,788,854,948
July 8923 2,994,276,263,614
August 9038 3,642,927,464,846
September 8032 6,118,298,129,902
October 9825 5,798,681,339,660
November 8662 3,753,086,054,404
December 9371 5,073,479,548,913
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Box 4: National Payment Switch
During 2018, a Draft of the Financing Agreement between Government of Sierra Leone and World Bank was
prepared aimed to increase the interoperability of digital payments and access to financial services in Sierra
Leone. This financing Agreement is expected to support the following three components:
(1) enhancing interoperability of digital payments (introduction of a retail payment switch), (2) ensuring the
viability of the payments system through increasing usage (supporting linkages to the payments system,
supporting rural connectivity with the payments system, and overcoming regulatory and cybersecurity hurdles
to the viability of the payments system), and (3) incorporating project implementation support (project
coordinator, fiduciary support, and support to facilitate private sector engagement).
Table 42 : Automated Clearing House (ACH) Transactions in 2018
Direct Credit Cheques
Month Volume, number Value, in Le Volume, number Values, in Le
January 12,605 62,442,871,636 16,901 198,057,720,323
February 11,797 52,932,376,305 15,804 175,706,782,066
March 36,108 81,183,090,228 29,964 156,577,358,886
April 22,398 48,310,339,167 39,332 230,327,317,662
May 26,038 51,473,850,363 40,702 239,554,084,034
June 22,772 50,427,189,431 40,284 231,462,951,437
July 24,910 49,767,599,077 34,644 196,774,319,077
August 29,400 59,522,638,398 39,172 246,771,826,135
September 11,348 24,786,529,878 17,392 88,950,838,907
October 16,000 29,821,154,354 14,762 81,217,026,683
November 13,196 56,080,977,404 18,257 193,511,090,540
December 17,457 67,480,412,970 18,348 201,713,706,696 Source: Banking Department, BSL
Figure 27 : Automated Clearing House (ACH) Transactions in 2018
Source: Banking Department, BSL
-
50,000,000,000
100,000,000,000
150,000,000,000
200,000,000,000
250,000,000,000
300,000,000,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
DIRECT CREDIT VALUE (Le) CHEQUES VALUE (Le)
63
As shown in the Table 42 and Figure 29, the use of cheques still remains the predominant means
of direct credit transactions processing. However, the level of acceptability of electronic means
of interbank transactions is sustained and has a potential to create efficiency in the delivery of
financial services.
5.2. Other Retail Payment Systems 2014-2018
The performance in the value of direct credit transactions is shown in Table 42 and Figure 29
above is reflected in the growth of other forms of electronic retail payment systems, such as
Automated Teller Machines (ATM) and Point of Sale (POS) transactions. In table 43 it is
revealed that ATM transactions increased by 324.12 per cent (from Le63.01bn to Le267.24bn)
over the period 2014 to 2018 while POS transactions grew by some 236.56 per cent (from
Le13.1bn to Le44.09bn) from 2014 to 2018. This further points to the gradual acceptability
of electronic means of processing transactions.
Table 43 : Payment transactions through ATMs and POSs
Source: Banking Department, BSL
Regarding geographical distribution of the ATMs and POSs, the data show (Table 44) a very
high concentration of ATMs and POSs in the Western area (2018: 91 per cent of POSs and 68
per cent of ATMs) compared to other areas in the country. This indicates that there is an uneven
distribution of these payment services, thereby financially excluding a very good number of
the population.
2014 2015 2016 2017 2018
Number of ATMs 59 69 71 43 175
Number of POSs 72 130 150 32 414
ATM Transactions, Volume 303,840 730,803 370,726 530,342 1,204,162
POS Transactions, Volume 5,143 11,509 23,981 6,773 30,537
ATM Transactions (Le'000) 63,011,401 154,380,059 69,532,802 102,109,510 267,237,998
POS Transactions (Le’000) 13,100,662 25,855,913 34,351,419 5,670,955 44,096,804
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Table 44 : Regional distribution of ATMs and POSs
Regional spread of ATMs
2014 2015 2016 2017 2018
Northern Province 8 8 16 14 8
Southern Province 4 4 4 6 6
Eastern Province 2 2 5 5 9
Western Area 34 37 46 69 49
Total 48 51 71 94 72
Regional spread of POSs
Northern Province 5 10 9 14 6
Southern Province 1 1 1 16 11
Eastern Province 1 1 2 4 3
Western Area 58 98 138 209 211
Total 65 110 150 243 231
Source: Banking Department, BSL
6.0 FINANCIAL SECTOR REFORMS UNDERWAY
6.1 Framework on financial system stability
The amended Bank of Sierra Leone Act of 2019, has brought to light the financial stability
mandate, which will enable the BSL exercise its macroprudential authority through
developing and operationalising macro-prudential and stress testing frameworks to safeguard
financial system stability. The framework will consist of macroprudential indicators and tools
that will enable timely decision making in prevention of potential financial market
disruptions.
The BSL is also developing a crisis management and the bank resolution framework that will
lay down clear processes and procedures to deal with financial institutions that are in distress.
Additionally, the BSL is in the process of developing a framework for identifying the
Domestic Systemically Important Banks (D-SIBs). The objective is to put in place a reference
system for assessing the systemic importance of commercial banks operating in the territory
of Sierra Leone, including assessment of needed additional capital as a result of different
degree of systemic importance of individual banks.
The BSL is also in the process of establishing its Financial Policy Committee (FPC) that will
address policy issues relating to financial system stability, including micro and macro-
prudential supervision, resolution and oversight of payment systems and other financial
market infrastructure.
65
6.2 Risk based supervision
In 2018, the BSL has shifted away from the traditional rule based approach to regulation and
supervision, and has adopted a risk-based supervision approach, which considers that
regulation and supervision should be proportional to the systemic importance of the financial
institution. Seven out of 14 commercial banks were examined during the pilot phase of
implementation of the risk based supervision and the full adoption of the Risk Based
Supervision Framework will take place in early 2019.
6.3 Risks and enterprise risk management framework
Aimed to better understand the risks faced by banks and to ensure that they are properly
assessed, effectively controlled and managed, the BSL has directed commercial banks to put
in place enterprise risk management framework and other necessary risk mitigation controls
to manage their respective risk appetite. Banks have generally achieved the various stages of
defining, implementing and enforcing some risk framework to ensure that it is commensurate
with the scope and complexity of their operations. Traditionally credit risk was the major type
of risk facing banks in Sierra Leone. The adoption of IT increases the importance of
operational risk, while the increasing integration of the financial sector into global financial
markets, through cross border banking and capital flows, also creates new sources of risk. The
evolution of technology has made possible the issuance and innovation of many varied
banking products including the VISA, MasterCard, online Banking, Mobile money and e-
commerce.
6.4 Implementation of IFRS 9
The BSL implemented IFRS 9 in 2018 that increases bank-wide provisioning, due to the
change from a backward-looking approach to recognizing impairment provisions to a
forward-looking approach based on expected credit losses (ECL). Analysis of preliminary
accounts as at June 2018 shows that IFRS 9 provisions were higher than those under IAS 39.
The impact on capital from the audited accounts varies across banks.
66
6.5 Minimum Paid up Capital
To mitigate against risks and make commercial banks more resilient to potential shock, the
BSL has initiated stakeholders’ consultation during 2018 and subsequently decided to
increase the minimum paid up capital for commercial banks in March 2019. The Minimum
Paid-Up capital stood at Le30 billion as at December 2018 and it has been increased to Le45
billion. It shall further be increased to Le85 billion by end December 2021. This increase in
capital will enable commercial banks to increase their resilience as well as increase the size
of loans to creditworthy customers.
6.6 Non-Performing Loans.
The non-performing loans (NPLs) ratio is still high with an industry average of 12.12 per cent,
which is above the prudential threshold of 10 per cent as at September 2019. Six (6) out of
the fourteen (14) commercial banks recorded NPLs above the tolerable limit of 10 per cent
with an average of 24.56 per cent as of September 2019. The high NPL ratio in the industry
is attributed to weak credit underwriting processes and poor credit management. Unpaid credit
to government contractors has been a major cause of NPLs in the financial system. The BSL
and Ministry of Finance are working closely to develop a strategy to resolve the problem of
payments due to government contractors. The BSL has issued a moratorium restricting banks
with high non-performing loans not to do further lending until recoveries improved.
6.7 Fit and Proper Test
To enhance its regulatory framework the BSL has reviewed its Fit and Proper Persons’
procedures and requires individuals holding or intending to hold Board, Trustee and
Management positions to go through a vigorous ‘fit and proper persons’ test before occupying
responsible position in any financial institution regulated by the BSL.
6.8 Guidelines on the use of Agents
The BSL will be introducing its Guidelines on the use of Agents. This Guidelines is intended
to respond to changes and innovations in products, services and delivery channels of financial
institutions working to reach the currently unserved or underserved by formal financial
institutions.
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6.9 The Government to the People (G2P) Project
In its drive to promote financial inclusion, the BSL in collaboration with the Accountant
General department developed a G2P Project that was focused on creating digital products
for government employees. This project kicked off in January 2019 and is still under
implementation.
© 2020 Bank of Sierra Leone